New tax laws passed in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle’s sale or the vehicle’s fair market value, whichever is less. Before 2005, taxpayers were allowed to deduct the fair market value of donated cars.
Grant Thornton’s National Tax Office reports that car donations of over $500 dropped by two-thirds between tax year 2004 and 2005, the last year for which the IRS has detailed data available. Car donation deductions were claimed on 900,000 tax returns in 2004, compared to 900,000 tax returns claiming such deductions in 2005.
