If you donate your motor vehicle, boat, or airplane (vehicle donation) to a qualified charity & itemize deductions, you can generally claim a handsome charitable donation deduction on your federal tax return. The extent of deduction will depend in part on what the charity does with your vehicle donation. Here are a few examples that illustrate how this has an effect on the final deduction, and the records you need to substantiate.
You generally may deduct the fair-market value if the organization makes what the IRS calls a “significant intervening use” of the vehicle, such as using it to deliver meals to needy people.
Example 1: Suppose you donate a vehicle to a local charity with a fair market value of, say, $3,000. But the charity sells it to someone other than a needy person for $2750. Before the sale, the charity did not significantly use or improve the vehicle. If a charity sells a vehicle for more than $500 to someone other than a needy person, the deduction is generally limited to the gross proceeds the charity receives, which in this case is $2750. The charity is supposed to report that sale-price information to you.
If your deduction is less than $500, obtain from the charity a written acknowledgement that includes your name, tax payer identification number, vehicle identification number, contribution date, sale date, gross proceeds from the sale and statements that the vehicle was sold in an arm’s length transaction between two unrelated parties and that you cannot deduct more than the gross proceeds.
Example 2: Let us assume the same donated vehicle at a fair market value of $3000 is sold by the charity for a return of $400 in gross proceeds. In this case, when a charity sells a vehicle for less than $500 to someone other than a needy person without significant use or material improvement, the deduction is generally the lesser of $500 or the vehicle’s fair market value on the contribution date. So, you can deduct $500 in this scenario.
If the deduction is at least $250 and not more than $500, you will require a written statement from the charity with a detailed description of the vehicle and a statement as to whether the charity provided you with goods or services in return for your donation. If so, the charity must include an estimate of their value. If the charity only provided intangible benefits, a statement to that effect must be included. To deduct your donation, you must receive the written acknowledgement or Form 1098-C from the charity within 30 days of the vehicle’s donation or sale.
If your deduction is less than $250, a written acknowledgement from the charity is not a must, but you must keep records that include the charity’s name and address, the date and place of donation, and a description of the vehicle.
