New 2005 Car Donation Tax Laws

If you are planning to donate a car or boat to charity before the end of this year, you'll still qualify for a tax-deductible contribution if you itemize your deduction -- but the deduction may be a lot smaller than in the past.

Beginning Jan. 1, 2005, when a taxpayer donates a vehicle for which the claimed value is $500 or more, the precise deduction he can claim will depend on how the charity plans to use the vehicle.

If the auto is sold by the nonprofit, then the taxpayer will be able to deduct only the amount of gross proceeds the organization got from the sale. And the donor will have to depend on the charity to let him know the donation amount by the individual tax-filing deadline. Because charities go for quick turnarounds and most vehicles are sold at auction, you'll probably be stuck with the lower wholesale price.

If, however, the non-profit group plans to use the car for what the law deems as "significant" tax-approved charitable work, the donor would be able to claim the fair market value of the donated vehicle.