If you donate a car to a qualified charitable organization and intend to claim a deduction, you should be aware of the special rules that apply to vehicle donations.
Charities typically sell donated vehicles. If the charitable organization sells the vehicle you donated it to, the deduction claimed by the donor (you) may not exceed the gross proceeds from the sale.
If the donated vehicle sells for less than $500, you can claim the fair market value of your vehicle up to $500 or the amount it is sold for if less than fair market value without the need to file any additional paperwork with the IRS. The donee organization should furnish you with Copy B of Form 1098-C, , Contributions of Motor Vehicles, Boats, and Airplanes, stating the donation amount.
The taxpayer can generally deduct the vehicle’s Fair Market Value (FMV), if:
- The charitable organization makes significant intervening use of the vehicle, such as using it to deliver meals on wheels.
- The charitable organization donates or sells the vehicle to a needy individual at a significantly below-market price if the transfer furthers the charitable purpose of helping a poor person in need of a means of transportation.
- The charitable organization makes a material improvement to the vehicle, i.e., major repairs that significantly increase its value and not mere painting or cleaning.
If the donated vehicle sells for more than $500 and your deduction is $500 or more, you must obtain written, contemporaneous (timely) acknowledgment of the donation from the charitable organization. You must also attach Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to your tax return.
The written acknowledgment generally must include your name and taxpayer identification number, the vehicle identification number, the date of the contribution, and one of the following:
- A statement that the charity provided no goods or services in return for the donation, if that was the case,
- 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,
- A statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case.
Note: If the written acknowledgment does not contain all of the required information, the deduction may not exceed $500.
If you need help with bookkeeping, individual or cross-border tax preparation, contact us today!
