Fair Market Value v. Actual Sales Price
When donating a car to charity, a taxpayer traditionally was allowed to deduct the fair market value. The new law changes this valuation to the actual sales price of the vehicle when sold by the charity. The taxpayer is also required to get written and timely acknowledgment from the charity in order to claim the deduction
The AJCA does provide some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of a vehicle–such as regular use to deliver meals on wheels– the donor may deduct the full fair market value. For example, driving a vehicle a total of 10,000 miles over a one-year period to deliver meals is a significant intervening use.
The AJCA also allows a donor to claim a fair market value deduction if the charity makes a material improvement to the vehicle. Under the guidance, a material improvement means major repairs that significantly increase the value of a vehicle, and not mere painting or cleaning.
If you intend to assert one of these exemptions, how do you determine the fair market value? Generally, vehicle pricing guidelines and publications differentiate between trade-in, private-party, and dealer retail prices. The IRS consider the fair market value for vehicle donation purposes to be no higher than the private-party price.
The new provisions of the Americans Job Creation Act certainly make it less attractive to donate a car to charity. Using the exemptions, however, you can still create a sizeable deduction while helping others who are less fortunate.