If you plan on donating a car or truck to charity, you may want to make your donation before new and tough charitable donation rules kick-in. Some of these rules are effective retroactively for donations after June 3, 2004; others not until after December 31, 2004. Still others, however, only reinforce requirements already in existence for several years.

The toughest rules in the new law involve a crackdown on donations of vehicles to charities after December 31, 2004. The IRS will deny your deduction if you do not receive a contemporaneous written acknowledgement for any vehicle donation if you claim the vehicle is worth more than $500. You have to submit the acknowledgement with your return.

The written acknowledgement must be given to you by the charity within 30 days of the:

--Contribution of the qualified vehicle, or

--Date of sale of the qualified vehicle by the charity if it sells the vehicle without any significant intervening use or material improvement.

If the charity sells your vehicle without any significant intervening use or material improvement, your maximum deduction is limited to the proceeds received by the charity from the sale of the vehicle.

Fair market value

The burden of establishing the fair market value of a donated item is on you. In the case of minor items, you may estimate the value at the time of the donation based on recent sales of similar items. The physical condition and relative obsolescence of the donated item must be taken into account.

For donations of most clothing and household items, "thrift shop value" has led to widespread overvaluation by many taxpayers. The IRS will not comment on statistics regarding how many times these deductions are audited and when penalties are applied based on the extent to which those items were overvalued (items which, of course, are no longer retrievable).

Some return prep programs use a list of typical donated goods and assign a value to them depending on condition. The IRS will not officially comment on whether these tables are acceptable. The Internal Revenue Manual for agents contains no such list.

Appraisals are important

An appraisal is generally the best method for establishing an item's fair market value. If your donation exceeds $5,000 in value, you must obtain an appraisal of the item and attach a summary of the appraisal to your return. Since this rule applies to donations made anytime after June 3, 2004, some donors are having trouble going back to charities now to get the required appraisals done retroactively. While closely-held corporations and personal service corps had to get an appraisal under pre-2004 law, regular C corporations now must obtain appraisals, too. The IRS is expected to come out with some transitional rules on this problem soon.