Donating a Vehicle to Charity

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Many taxpayers mistakenly believe that if they donate their car to a charity, they may decide the fair market value of the vehicle and deduct that amount on their tax return. This method for vehicle deduction was revised 15 years ago when Congress became aware of taxpayer abuse. The current rules, enacted in the American Jobs Creation Act of 2004, apply not just to automobiles but to a broad class of vehicles, including boats and airplanes.

 

Starting with tax year 2005, the amount allowed for a vehicle claiming more than a $500 tax deduction was limited to the gross proceeds the charity ultimately receives upon its subsequent sale. Some charities sell donated vehicles en masse to dealers for very low per-car flat fees. Taxpayer may deduct only the amount the charity receives, not the price the dealer ultimately gets.

 

The charity must provide the donor with IRS Form 1098-C (or a substantially similar contemporary written acknowledgement) describing details of the vehicle (including the odometer reading and vehicle identification number) and the gross proceeds the charity received when it sold the vehicle. The charity provides Form 1098-C to both the IRS and the donor. A taxpayer cannot claim the deduction unless this acknowledgement is attached to the return. If the return is e-filed, it is attached as a pdf document.

 

A better tax deduction may be available if a vehicle is not sold right away by the charity. Donors of such vehicles may still claim its fair market value. This could occur if the charity itself uses the vehicle (such as for transportation or delivering meals on wheels), if it makes repairs to significantly increase the vehicle's value, or if it gives the vehicle (or sells it below value) to a needy person. In these cases, Form 1098-C is used by the charity to provide the taxpayer with certification of its intended use.

 

To be considered contemporaneous, Form 1098-C (or similar written acknowledgement) must be furnished to the taxpayer no later than 30 days after the charity sells the vehicle. If the organization will not be selling it, the acknowledgement must be provided within 30 days of the date the taxpayer contributes the vehicle.

 

Donations only qualify for a tax deduction if they are contributed to a qualified section 501(c)(3) charity or to a religious organization. Like other noncash charitable contributions, if the donation exceeds $500, the taxpayer must also include IRS Form 8283 in the tax return with details about the donation. If a claimed noncash donation exceeds $5,000, Section B on page 2 of Form 8283 requires both a written signature from the charity and a signed declaration from a qualified appraiser.

 

The Tax Cuts and Jobs Act (TCJA) did not make specific changes to the vehicle donation rules, but its provisions may affect its benefits. Because the standard deduction was raised to $12,000 for single individuals ($24,000 on joint returns), many taxpayers who claim the standard deduction will get no additional advantage from a vehicle donation. Also, although TCJA increased the adjusted gross income limitation for cash contributions from 50% to 60%, it remains at 50% for noncash contributions.

 

Contact your LM Cohen professional for more information about vehicle donations. All our prior Alerts are available on the Updates page of our website.

 

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