In 2004, Congress changed the rules regarding deductions when you donate a car to charity. The rules more or less limited the deduction that you could claim to $500 or the lesser of the car’s fair market value or the actual proceeds from the sale of the car. This has seriously impacted both the number and value of used car donations.

The accounting firm of Grant Thornton reports that between tax year 2004 and 2005, the number of car donations valued at more than $500 dropped by approximately 67%. The total value of donations fell more than 80%.

In order to claim a deduction of more than $500 for donating a motor vehicle (car, motorcycle, boat, or airplane) to charity, you must attach Copy B of the IRS Form 1098-C, which has been provided by the charity, to the Form 8283 that is included in your 1040.

Learn more about making a car donation.