HOUSTON BUSINESS REVIEW

THE CPA CORNER: CHARITABLE DEDUCTIONS--MOTOR VEHICLE, BOAT OR PLANE
By C. Kevin Moore

Kevin Moore is the Principal with C. Kevin Moore & Associates and has two decades of experience as a Certified Public Accountant. Each week he provides the information you need to grow and protect your business.

A Consideration for Year End 2004

The Internal Revenue Service issued a consumer alert to help taxpayers avoid potential pitfalls when they donate their vehicles to charities. Beginning in 2005 if the claimed value of the donated motor vehicle, boat or plane exceeds $500 and the item is subsequently sold by the charitable organization, the taxpayer’s deduction is limited to the gross proceeds from the sale. Under the new rules, the charitable organization must provide an acknowledgement to the donor within 30 days of the sale stating the amount of gross proceeds.

Alternatively, if the charity significantly uses or materially improves the vehicles, the charity must certify this intended use and duration and provide an acknowledgement to the donor within 30 days of the contribution. If the charity significantly uses or materially improves the vehicle, generally, the donor may deduct the vehicle's market value.

Itemize in Order to Benefit. Many taxpayers can't take a deduction for vehicle donations because they don't itemize deductions on their personal tax return. For taxpayers, the decision to itemize is determined by whether their total itemized deductions are greater than the standard deduction (for 2004, the standard deduction will be $4,850 for single; $9,700 for married filing jointly). Statistics show approximately one-third of the 130 million individual taxpayers itemized in 2001, the last year for which complete data is available.

Deduct Only the Car's Fair Market Value. Some car donation program operators have mistakenly claimed that donors can deduct the highest value listed in a used-car buyer's guide for their make and model of car, regardless of the donated car's condition. The IRS, however, will only allow a deduction for the fair market value of the specific vehicle. Fair market value takes into account many factors, including the vehicle's condition.

Document the Charitable Contribution Deduction. For vehicle donations, taxpayers must document the specific donation and its fair market value. Recordkeeping requirements are comprehensive and vary depending on the amount of the contribution and the total amount of the charitable deduction. Keep good records and take advantage of this deduction.