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TAX TIPS
Last Call for Easy Car Write-Offs
by Kevin McCormally

If you're planning to give a car to a charity soon, make it real soon: Like before the end of the year. Starting in 2005, a congressional crackdown comes to the car donation world and tax deductions are sure to be squeezed.

After years of fretting that people were ripping off the IRS by claiming exorbitant tax deductions for cars given to charity, Congress got around to changing the rules earlier this year ... effective the end of the 2004.

First, let's look at the law as it exists today. Under current rules -- which cover donations through December 31 -- you can deduct the fair market value of the car. And, when that's $5,000 or less, you get to set the car's value based on estimates from used car dealers or Web sites such as Edmunds.com or KelleyBlueBook.com. (Bigger deductions must be backed up with an appraisal.) Adjust the quoted value for the condition of your car, perhaps by checking with used-car dealers: a cream puff is worth more than the averages, a junker less. So if your clunker's not worth much sitting in your driveway or as a trade-in, it's not worth much on your tax return, either. (And remember, the deduction works to cut your tax bill only if you itemize deductions. If you're among the 70% of Americans who claim the standard deduction, you get no tax benefit.)

If you claim a deduction of $250 or more, you must get a receipt from the charity and if your write-off exceeds $500, you must file Form 8283 with your return.

Now, why giving a car sooner rather than later will simplify your life and probably save you even more on your taxes: Starting next year, if the car is worth more than $500, write-offs will be limited to the price the charity actually gets when it sells your car. That may seem fair. But since charities go for quick turnarounds and most vehicles are sold at auction, you'll be stuck with the lower wholesale price. Charities aren't happy about the extra paperwork or the fact that reduced tax benefits will likely put a crimp in contributions.

But they are expecting a flood of donations before the rules change.