Automotive trends are beginning to change. Gas guzzling SUVs are making way for smarter hybrid vehicles. Also called “clean fuel vehicles”, these cars and trucks operate on either an electric motor, or a fuel engine and an electric motor. They are wise choices for anyone concerned with preserving our earth’s precious resources, and the government is awarding these smart consumers with special tax deductions.
If you have purchased a vehicle that runs on both fuel and electricity, you can claim a one-time deduction of up to $2,000. Owners of vehicles that operate on electricity only can claim up to $4,000.
For yours to qualify as clean fuel vehicle, it must run on natural gas, LNG, LPG, Hydrogen or any other fuel that is 85% alcohol or less. You should be cautioned that even though gasoline/electric hybrids use an electric motor, they are not eligible for electric vehicle tax credits.
If your vehicle operates on more than one type of fuel, the cost incurred in converting the car into a proper clean-fuel user may earn you a deduction, subject to the stated limits.
There are other additional requirements to consider. To get a tax credit on your car, you must buy it first-hand and drive it primarily within the USA. The vehicle should have four wheels and is not to be used for commercial purposes. If any of these conditions change within three years of purchasing the vehicle, some of the money you received as tax deduction will have to be reimbursed.
Vehicle donations can also earn healthy tax credits. You may have seen advertisements by charity organizations offering tax breaks for vehicle donations. Technically, this is a valid offer, but there are several things that you need to consider. You cannot state the value of the car you are donating to be a penny more than its current market price. In effect, the deduction will be based upon the same amount that a buyer would pay in the fair market.
The amount of the tax deduction will depend not only on the value of the car, but also how the charitable organization uses it. The organization you donate the vehicle to must also be recognized by tax agencies. As unusual as the situation might be, you will have no idea as to the amount of tax break your donation will fetch you.
If the charity you gave your vehicle to sold it off at a lower price than your stated value, you will receive a tax deduction on the lower amount. On the other hand, if the charity sells your car after using it over a period of time, you need not worry. In this case, the deduction will be based on the value of your car at the time of your donation.
If you’re thinking about donating a car to charity, or purchasing a clean fuel vehicle, you will benefit in two ways. You will feel better knowing that you’ve helped a greater cause, and the government will reward you for making a smart choice.
Charitable Tax Deductions
People who give to charity do so freely, without a tinge of “what’s in it for me”. But even the most earnest philanthropists will agree that a tax break can make the good feeling you get from giving, even better.
When you donate to your favorite charity, make sure to let the tax agency know. Charitable tax deductions are readily and legitimately available to you. Your contributions to charitable organizations can add up to a sizeable deduction when you itemize them on IRS Form 1040, Schedule A.
Before you make any donations, be sure to carry out a few checks. Remember that only donations made to organizations that are recognized by tax agencies are eligible for tax deduction. Refer to the IRS Publication 78 for a complete list of all recognized charitable organizations. Check your public library or search online to view this list.
Tax benefits are not available on donations made to individuals, political leaders or political organizations. Further, you cannot claim a tax break for time spent raising money for organizations by holding raffles, bingo or any other games of chance.
Tax deductions are available on contributions made in the form of goods, services or merchandise. This deduction must be claimed on the fair market value of these goods or services. For example, you may choose to donate by gifting stocks of your company. In this case, the value of the donated stocks will be calculated as the average of highest and lowest traded prices on the date of valuation.
You may also receive a tax break by donating a vehicle. The amount of the deduction will be based on the vehicle’s resale value at the time of donation. This is also true of planes and boats donated to charity. However, if the claimed value of the donated boat, plane or motor vehicle exceeds $500, and the item is sold by the charitable organization, the tax break is limited to the gross proceeds from the sale.
If you are donating a household or personal item, a deduction can be claimed on the amount that the item would have fetched at a garage sale or at a flea shop. To qualify for a tax deduction, a proper receipt is required for all charitable contributions over $250.
Only contributions made during the tax year will qualify for a deduction. If you have used a credit card or issued a check, it does not matter what date the transaction shows on your account. You can claim the deduction only in the tax year that you made the donation.
Even if you don’t expect to get anything in return for your goodwill, go ahead and keep a list of your charitable donations. The tax department will appreciate and reward your generosity.