The Treasury department and the IRS have sought to clarify regulations affecting the donation of vehicles to charity, Tax Analysts reported.
The American Jobs Creation Act allows donors to deduct only the actual amount a charity receives when selling a donated car, rather than the market value of the car, unless the charity makes “significant intervening use” of the vehicle, or makes “material improvements” to it.
According to the June 3 clarification, donors may now deduct the fair market value of a donated vehicle if the charity gives or sells it at a greatly reduced price to a needy person requiring transportation.
The government statement also defines and gives examples of significant intervening use, which it says are activities that “substantially further the organization’s regularly conducted activities, and the use must be significant.”
It defines material improvements as “major repair or improvement that improves the condition” of the vehicle and increases its value.
The clarification also explains requirements for acknowledgement letters charities provide to donors, and establishes penalties for falsifying or failing to supply acknowledgement letters.