The hugely 
popular cash-for-clunkers program ended Aug. 25, 2009. This new program enabled vehicle owners to realize a tax-free discount of up to $4,500 on a trade-in. But you can still qualify for big tax benefits if you donate your “clunker” to charity.
Instead of trading in your vehicle, simply give it away to a qualified charitable organization. This entitles you to a deduction on your ’09 return.
The rules for charitable donations of vehicles were recently tightened by the American Jobs Creation Act of 2004. However, you may be able to qualify under a special exception.
Prior to 2004, you could generally deduct the fair market value (FMV) of a vehicle you donated to charity. But Congress became concerned about some over-aggressive valuations for beat-up jalopies. Under the 2004 law, the charitable deduction for a vehicle valued above $500 is generally limited to the amount the charity receives from a resale of the vehicle. The crackdown also applies to donations of boats and aircraft.
On the other hand, if (1) the charity “materially improves” the vehicle (e.g., it repairs dents or installs new features like a nav system) or (2) it “significantly uses” the vehicle for its tax-exempt purpose and properly certifies its use, you can still deduct the full FMV.
In addition, the regular limit on the donation value doesn’t apply if the charity sells the vehicle after 2004 at a price significantly below FMV, or gives it away, to a “needy individual.” To qualify under this exception, the charity must be dedicated to relieving the poor and distressed or the underprivileged that are in need of transportation.
Don’t miss out on this tax-saving opportunity. We can help you maximize the tax benefits for charitable donations of vehicles. Before you give away a clunker, call our office and we will provide guidance.