Charities year-round solicit contributions of cars and other vehicles.
Here's a typical scenario: Your client is at the dealership and have negotiated the price to buy or lease. Now, how much will the dealer pay for the old car—a junker? Peanuts! So why not give it to charity and get a charitable deduction? Your client wants to help the charity. Generally, forget about a big deduction. But give the car to help a worthy cause.
Basic Rules
- Your clients are itemizers.
- The charity is qualified to receive tax-deductible contributions. To verify that an organization is a charity qualified to receive tax-deductible contributions, use the “Tax-Exempt Organization Search” on the Internal Revenue Service website.
Not all qualified organizations are listed in Tax-Exempt Organization Search. For example, churches, synagogues, temples and mosques aren’t required to apply to the IRS for recognition of exemption to be qualified organizations and frequently aren’t listed. Questions? Call IRS Customer Account Services at 877-829-5500. Be sure to have the charity’s correct name. It’s also helpful to know the charity’s address.
- Take the various adjusted gross income ceilings on deductibility into account—and the 5-year carryover rules.
- The gift must be of a qualified vehicle: any motor vehicle manufactured primarily for use on public streets, roads and highways; a boat; or an airplane.
- The amount deductible for a vehicle contribution depends on what the charity does with the vehicle as reported in the charity’s written acknowledgment. Charities typically sell donated vehicles. If the charity sells the vehicle, generally the deduction is limited to the gross sales proceeds. See below for exceptions.
- A written acknowledgment is required for deductions of over $500. It must contain: taxpayer’s name and identification number; the vehicle identification number; and the date of the contribution. Plus, it must contain one of the following: a statement that no goods or services were provided by the charity in return for the donation if that was the case or a description and good faith estimate of the value of goods or services, if any, the charity provided in return for the donation. If the goods or services provided by the charity consisted entirely of intangible religious benefits, the receipt should so state.
- Caution. If the acknowledgment doesn’t contain all required information, the deduction may not exceed $500.
Gross Proceeds Limit
If the charity sells the vehicle, the deduction is limited to the gross proceeds the charity receives from its sale. In addition to the information stated above, the contemporaneous written acknowledgment must contain: (1) a statement certifying that the vehicle was sold in an arm’s-length transaction between unrelated parties; (2) the date the vehicle was sold; (3) the gross proceeds received from the sale; and (4) a statement that the taxpayer’s deduction may not exceed the gross proceeds from the sale.
Exceptions. If one of the following applies, the taxpayer may be able to deduct the vehicle’s fair market value on the date it was donated. The acknowledgment contains a statement certifying the charity intends to: (1) make a significant intervening use of the vehicle, a detailed description of the intended use, the duration of that use and a certification that the vehicle won’t be sold before completion of the use; (2) make a material improvement to the vehicle—a detailed description of the intended material improvement and a certification that the vehicle won’t be sold before completion of the improvement; or (3) give or sell the vehicle to a needy individual at a price significantly below FMV and that the gift or sale is in direct furtherance of the charity’s charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. This exception won’t apply if the charity merely applies the proceeds from the sale of the vehicle to a needy individual for any charitable purpose.
If Donated Vehicle Sells for $500 or Less
A special rule applies if the acknowledgment indicates that the donated vehicle sold for $500 or less. In this case, a deduction may be claimed for the lesser of the vehicle’s FMV on the date of the contribution, or $500, provided a written acknowledgment is obtained from the charity that complies with the requirements described under “Written acknowledgment for a vehicle contribution deduction of $500 or less,” below.
Time and Manner of Providing Acknowledgment
The written acknowledgment from the charity must be received within 30 days from the date of the vehicle’s sale, or if an exception applies, within 30 days of the date of the donation.
The charity may use Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, as acknowledgment or provide its own statement containing the information described above. The acknowledgment and Form 8283, Noncash Charitable Contributions, must be attached to the tax return.
- Written acknowledgment for a vehicle contribution deduction of $500 or less. For claimed deductions of at least $250 but not more than $500 as the value of the vehicle, the acknowledgment must include the name of the charity, a description (but not value) of the vehicle and one of the following: (1) a statement that no goods or services were provided by the charity in return for the donation, if that was the case; (2) a description and good faith estimate of the value of goods or services, if any, that the charity provided in return for the donation; or (3) a statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case.
- Crucial. The written acknowledgment must be received on or before the earlier of the date of filing the return for the year the vehicle is donated or the due date, including extensions, for filing the return. The charity can provide a paper copy of the acknowledgment, or it can provide the acknowledgment electronically, for example, an email. The acknowledgment shouldn’t be attached to the income tax return. It should be retained with the taxpayer’s records to substantiate the donation.
Determining FMV
If an exception to the gross proceeds limit applies to the claimed deduction or if a deduction of $500 or less is claimed, the taxpayer needs to determine the vehicle’s FMV as of the date of the contribution. Generally, FMV is the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts. That, of course, is easier to say than to come up with an acceptable FMV.
- If a vehicle pricing guide is used to determine FMV. Be sure the sales price listed is for a vehicle of the same make, model and year, sold in the same condition and with the same or substantially similar options or accessories, as the donated vehicle. Moreover, the FMV can’t exceed the price listed for a private-party sale.
Claimed Deductions Over $500
Attach to the return the written acknowledgment received from the charity. Depending on the amount claimed, the taxpayer may have to get and keep certain records and file an additional form or statement to substantiate their charitable contributions.
- If the deduction claimed for a vehicle gift is greater than $500, but not more than $5,000. The taxpayer must complete Section A of Form 8283 and attach it to the Form 1040. If the deduction claimed is greater than $5,000, complete Section B of Form 8283, which must include the signature of an authorized official of the charity, and attach it to the tax return. In addition, if the deduction is over $5,000 and not limited to the gross proceeds from the sale of the vehicle, the taxpayer must get a written appraisal of the vehicle.
Written Appraisal
The written appraisal must be from a qualified appraiser. See IRS Publication 561, Determining the Value of Donated Property. The appraisal must be made no more than 60 days before the donation of the vehicle. The appraisal must be received before the due date (including extensions) of the return on which the taxpayer first claims a deduction for the vehicle. For a deduction first claimed on an amended return, the appraisal must be received before the date the amended return is filed. When the taxpayer files the income tax return (Form 1040 or Form 1040X), Section B of Form 8283 must be completed and attached to the return.
Charity Disposal of Vehicle
If Section B is required and the charity sells or otherwise disposes of a vehicle within 3 years after the date of receipt, the charity must file Form 8282, Donee Information Return, with the IRS. I’ve dubbed Form 8282 as the “tattletale” form. The charity reports information identifying the donor and itself and the amount it received on sale or other disposition of the vehicle. The charity must provide your client with a copy of Form 8282.
It Ain’t Just Taxes
Generally, state charity officials recommend that the donor take responsibility for transfer of title to ensure termination of liability for the vehicle. In most states, this involves filing a form with the state motor vehicle department that states that the vehicle has been donated. Before donating the vehicle, your client should remove the license plates, unless state law requires otherwise. This may help you or a client avoid any liability problems after the vehicle is transferred.
Parthian Shot
“Men must turn square corners when dealing with the government.” Supreme Court Justice Oliver Wendell Holmes Jr. must have been looking ahead to claiming a charitable deduction for a donated vehicle when he wrote this in 1920 in Rock Island A. & L. R. Co., 254 U.S. 141.
© Conrad Teitell 2018. This is not intended as legal, tax, financial or other advice. So check with your adviser on how the rules apply to you. Remember, your mileage may differ.