Have you ever donated your used cars to your favorite charity when you buy a new one? Many people in the United States have done this as a tax deduction and a way to help those who are less fortunate. However, that might be more difficult to do now.
The IRS has created new regulations regarding donating used cars. Before 2005, you could deduct the fair market value of the car you donate. However, those rules have changed because people were abusing that legislation by inflating the actual value of the car for a better tax deduction. If you donate a used car now, you can only report the actual proceeds from the car’s sale or its fair market value, whichever is less.
This means you can no longer put your own value on the car for purposes of your tax return. And since the IRS has also prohibited charities from giving the cars away now, they sell them at a drastically reduced value for people who need them. This greatly reduces the amount of the deduction for the person donating the used cars. As a result, donations of used cars have dropped by about 80 percent.
Just keep this in mind if you donated one of your used cars in 2008 and you are getting ready to fill out your tax returns.