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COUNT YOUR BLESSINGS - THEN GIVE THEM AWAY?

November 17, 2004

The end of the year is a traditional time to pause and contemplate our lot in life. We take stock, count our blessings – and plot to keep them from the tax man.

This year-end contemplation often results in charitable gifts. Giving to a worthy cause feels good. If you give the right way, the tax man can make it feel even better.

Giving away appreciated property is the most tax-efficient way to be generous. If you give away property that has grown in value, and you have held it for more than one year, the tax law usually lets you take a charitable deduction for the value of the property – without ever paying tax on the appreciation.

For example, if that stock you paid 20 cents for has grown to $1,000, you can give it to charity and take a $1,000 tax deduction. If you instead sold the stock and gave the cash to charity, you’d have to pay tax on that $999.80 gain.

The ability to give property to charity has its limits. If the property you donate isn’t publicly-traded stock, you have to get a “qualified appraisal” to claim a deduction over $5,000. If your deduction is between $500 and $5,000, you don’t have to get an appraisal, but you do have to disclose it on Form 8283, which means the IRS knows about it, and they can ask you to show how that bag of used underpants that you donated to Goodwill is really worth $4,900.

DOES CHARITY BEGIN IN THE DRIVEWAY?

Used cars have been a popular gift to charity in recent years. Congress has decided that taxpayers were taking deductions for their pre-owned treasures that were, well, perhaps a tad optimistic. For example, a GAO study showed an example of a taxpayer taking a $2,400 deduction for a 1983 pickup truck. The charity sold the truck for $375 at auction, and after expenses the charity netted $31.50.

The bad news for car donors: Congress recently added a new provision to the tax law -- a requirement that taxpayers donating cars to charity may deduct only the amount the charity receives when it sells the car. Under these rules, the donor of that 1983 pickup would have deducted $375, rather than $2,400.

The good news for car donors: this requirement doesn’t take effect until 2005. If you’ve been considering giving away that automotive classic gracing your front yard, you may get a more optimistic deduction if you have it towed to your favorite charity before January 1, 2005.

But remember: you have to donate to a real charity; your worthy brother-in-law doesn’t count. Also, if you don’t itemize, no charitable deduction for you!

(Note: this article will appear in this month's 50Plus Lifestyles supplement to the Des Moines Register. Look for it in an upcoming Saturday Des Moines Register or at your local Dahls. The Tax Update is a regular feature of 50Plus Lifestyles. Despite the name, they won't card you.)

Prior car donation coverage:

CAR DONATIONS: TIME TO TAKE ACTION?

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