By Remy Welling

Although the Internal Revenue Service may seem a hodgepodge of bureaucratic rules run amok, in reality “though this be madness, yet there is method in it,” in the immortal words of Polonius in Shakespeare’s “Hamlet.”

The most recent changes to the tax laws regarding the charitable contribution of motor vehicles, boats and airplanes is a case of Congress trying to curb the abuse of prior tax laws. Notice 2005-44 in the Internal Revenue Bulletin provides the most current guidelines for such donations.

Here are some important questions about such donations:

How has the new tax law changed your ability to deduct your charitable contributions of motor vehicles, boats and airplanes?

Generally, beginning on and after Jan. 1, 2005, your deduction is equal to the lesser of either the fair market value at the time of your contribution or the gross proceeds received by the charitable organization for the sale of the vehicle. Fair market value is determined by using a vehicle-pricing guide.

Does the new tax law on motor vehicles, boats and airplanes include any other requirements?

Yes. You must attach an acknowledgment to your tax return, written by the charitable organization. You must obtain this acknowledgment no later than 30 days after the sale.

This written acknowledgment must include the name and taxpayer identification number of the donor, the vehicle identification number, the date of the contribution, the date the vehicle was sold, a certification that the vehicle was sold in an “arm’s-length” transaction between unrelated parties, a statement of the gross proceeds from the sale and a statement that the deductible amount may not exceed the amount of the gross proceeds.

Did Congress provide for any exceptions to the gross proceeds limitation for motor vehicles, boats and airplanes?

Yes. Your deduction is not subject to the gross proceeds limitation if the charitable organization makes significant use of the vehicle to substantially further its regularly conducted activities or if the charitable organization makes a major repair or improvement that largely increases the vehicle’s value.

Also, your charitable deduction is not subject to the gross proceeds limitation if the charitable organization sells the vehicle for less than fair market value (or even gives the vehicle away) to an underprivileged person, if the goal of the charitable organization is to assist underprivileged persons needing transportation.

You must attach an acknowledgment to your tax return, written by the charitable organization, as described in Notice 2005-44. Again, you must obtain this acknowledgment within 30 days of the date of the contribution.

Please be sure to consult with your tax professional on this matter for advice regarding your particular facts and circumstances.

Welling has a master’s degree in professional accounting from the University of Texas at Austin. E-mail comments, questions or topic suggestions for future articles to remywelling@sbcglobal.net