Lisa Finkelstein is a generous donor and a confused taxpayer. She doesn’t understand the IRS rules on deductions for cars and trucks donated to charity. “In one of your recent columns, you discussed tax deductions for vehicles consumers give to charities,” the New York woman explained. “You said, in part, ‘if you donate a car worth more than $500, then you can only deduct the amount the charity receives from the sale of the car.’

“As someone who has donated cars to charity in the past, I have a question. How do I know what the charity eventually does with them? The charity never let me know whether it kept them, repaired them or sold them.”

Just a few years ago, charities didn’t have to tell you. But they do now. Until 2005, consumers could deduct the full fair market value of the vehicles they donated. All they needed was a receipt for the donation. But too many taxpayers overestimated the value of their donations, so the IRS cracked down.

Under the new rules, taxpayer’s can only deduct fair market value for vehicles worth less than $500. If a car or truck is worth more than $500, it requires extra paperwork. Donors have to complete section A of IRS Form 8283 and attach the form to their income tax returns, along with a written acknowledgment from the charity.

The charity has 30 days from the date of the donation to provide the donor written certification about the fate of the car. If the charity sells the car, then the donor can only deduct the amount the charity received. Charities may also be required to certify how they plan to use or improve donated vehicles. The IRS can impose penalties on charities that provide fraudulent documentation about cars and trucks to consumers who donate them.

But the IRS is even more likely to penalize donors, because the donors–not the charities–are ultimately responsible for the accuracy of the information on their tax returns. The donor, not the charity, is responsibile for accurately valuing the car and could incur the largest penalties if an IRS challenge finds the value inaccurate. For more information, see IRS Pub. 4303-A.

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