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How to Donate Your Car the Right Way Before 2014

NEW YORK (TheStreet) -- Americans looking for a good tax deduction before Dec. 31 and who have an extra car or truck lying around can donate the vehicle to charity.

But the rules on donated vehicles have changed since 2005, when Congress placed limits on once-generous donation policies. Before, taxpayers could look up the value of their donated vehicle and claim that as their deduction, but in recent years the vehicle donation rules have become much more complicated, depending on how the charity uses the car or truck and how much the charity sells the vehicle for -- if they sell it at all.

By and large, if a charity (such as a food bank or senior transportation group) uses your vehicle instead of selling it, you may be able to claim the full market value. Just make sure you get documentation from the charity before claiming the deduction.

No matter how you do it, taking such a deduction has plenty shades of gray, and conferring with a tax adviser is wise.

"Today's rules are much more stringent, and it's nearly impossible to deduct the full market value," says Edmunds.com consumer advice editor Carroll Lachnit. "Understanding the proper procedures can help donors get the most out of their deductions and -- more importantly -- avoid penalties if audited."

To get the maximum value from your vehicle donation and stay away from prying IRS eyes in the process, Edmunds offers the following tips:

Know the rules. In 95% of cases, the charity will elect to sell your vehicle and pocket the cash, Edmunds says, in which case you can deduct the actual sales price of the vehicle. Get that price in writing, include it with IRS form 8283 and attach it to your 2013 tax returns.

Make sure your vehicle goes to a "qualified" charity. The IRS deems a charity qualified if it has achieved "exempt" status. The federal government calls them 501(c)(3) organizations, although religious groups also qualify. For a good look at all exempt-status organizations, visit the relevant IRS website here.

Make sure to itemize. Edmunds says you have to itemize the donation to make it legit. Here's how the company explains it: "If you want to claim your vehicle as a tax deduction, you must itemize your return, even if the car is the only deduction. But if the sum of your itemized deductions (including the car) does not exceed your standard deduction, then you might not want to claim itemized deductions after all."

Edmunds also strongly advises donators to keep all paperwork. If you're not sure which documents to store away on a donated-vehicle deal, consult IRS Publication 4303.

One last tip: If you have the time, sell the car yourself and donate the proceeds to your favorite charity. Chances are you'll earn more on the sale, and it streamlines the tax paperwork end of the giving process, Edmunds says.

Once again, if you're unsure about donating your vehicle, consult with a trusted financial, account or tax adviser. They'll walk you through the process and minimize potential problems with Uncle Sam -- a good move on any tax-related deal.

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