Charitable Clunkers

Generous rules for deducting charitable gifts let you do well for others as well as yourself. You can take deductions for for cash gifts as well as non-cash gifts. Used cars and trucks continue to be especially popular gifts. Giving your vehicle to charity saves the effort of selling it and may net more than if you trade the vehicle in.

But Congress and the IRS have cracked down on abusive valuations in an effort to stop taxpayers from claiming rich deductions for older cars:

• You can deduct the vehicle's fair market value only if the charity uses it for "exempt" purposes (like if a church uses a van to transport members of the congregation).
• If the charity sells the vehicle to raise cash, you can only deduct the charity's actual proceeds.

There are also new rules for documenting deductions. If you claim more than $500 for a used vehicle, you generally will need to include certification stating the vehicle was sold in an arm's-length sale and includes the gross proceeds from the sale. You will also have to file Form 8283 (reporting noncash contributions over $500.) The charity selling the vehicle should file Form 1098-C with the IRS to provide backup for the sale and the amount you claim as a deduction.