Posted on Wednesday, December 18, 2013
If you want to claim a deduction for donating your vehicle, you first need to make sure that your donation is made to a qualified organization (501(c)(3) charitable, educational or religious organization). The IRS has created the Exempt Organizations Select Check tool for users to determine whether an organization is eligible to receive tax-deductible charitable contributions.
Charitable donations can only be deducted if you itemize deductions on Schedule A of Form 1040.
The maximum amount you can deduct on Form 1040 is the fair market value of the vehicle. This does not automatically mean the “blue book” value of the vehicle. To determine the fair value of a donated vehicle, use the price listed in a used car guide for a private party sale, not the dealer retail value. The vehicle must be the same make, model, year, sold in the same area, in the same condition, with the same options, and with the same warranties. The value may be considered less if the vehicle has any damages, high mileage or excessive wear. A deduction using the fair market value may be claimed under the following circumstances: the nonprofit makes significant intervening use of the vehicle; the nonprofit makes material improvement to the vehicle; or the nonprofit 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.
If the nonprofit organization sells the vehicle shortly after receiving it, your deduction is limited to the gross proceeds the organization receives from the sale. In this case, the nonprofit organization must also provide you, as the donor, with a statement certifying the vehicle was sold in an arm’s length transaction between unrelated parties, the date the vehicle was sold, the gross proceeds received, and a statement saying your deduction may not exceed the gross proceeds from the sale.
As with any donation, you must obtain contemporaneous written acknowledgement from the nonprofit if the donation is $250 or more. The acknowledgement must contain the donor’s name and taxpayer identification number, vehicle identification number, date of the contribution and a statement that no goods or services were provided by the organization in return for the donation. The organization may use Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, as an acknowledgement or provide its own statement containing the required information. It must; however, file Form 1098-C with the IRS for any vehicle donation with a claimed value of more than $500. See our earlier blog Contribution Substantiation for additional information on written acknowledgements.
In addition, if your donation is greater than $500 (up to $5,000), you must complete Section A of Form 8283, Noncash Charitable Contributions, which among other things, asks for the donee organization’s name and address, the vehicle identification number, year, make, model, condition and mileage of the vehicle.
If your donation is greater than $5,000, you must complete Section B of Form 8283, Noncash Charitable Contributions, which requires the signature of an authorized official of the nonprofit organization. You must also obtain a written appraisal of the vehicle if your deduction is over $5,000 and not limited to the gross proceeds from the sale of your vehicle. The appraisal must be from a qualified appraiser, must be made no more than 60 days before the vehicle is donated, and received before the due date (including extensions) of the tax return on which you first claim the deduction for the vehicle donation. If Section B of Form 8283 is required and the nonprofit organization sells or disposes of the vehicle within three years after the date of receipt, the organization must file Form 8282, Donee Information Return, which includes the donor’s name and amount received from the sale. The organization must also provide the donor with a copy of Form 8282.
It is generally advisable that it is the donor’s responsibility to file a form with the state motor vehicle department stating the vehicle has been donated and to transfer title to the nonprofit organization.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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