Key point. Persons who contribute a car to a charity that is sold without significant use cannot claim the fair market value of the car as a charitable contribution deduction. Instead, their deduction is limited to the gross proceeds received by the charity from the sale.
Key point. The purpose of the vehicle donation rules is to address the chronic problem of donors greatly inflating the value of vehicles they donate to charity. Limiting a deduction to the sales proceeds received by a charity upon selling a donated car (assuming no significant use by the charity) will reduce or eliminate the incentive of donors to inflate the value of donated cars.
The American Jobs Creation Act of 2004 changed the rules for claiming a charitable contribution deduction for donations of used vehicles to charity. The new rules took effect in 2005. It is important for church leaders to be familiar with the new rules for two reasons. First, churches have reporting requirements that must be followed; and second, church leaders need to be ready to explain the rules to members who indicate an interest in donating a car (or a boat or plane) to the church.