Conrad Teitell
Conrad Teitell ()

Your clients are importuned year-round by charities to contribute their autos and other vehicles.

The typical situation is this: Your client buys or leases a new car. The dealer offers peanuts for his or her old car. So why not give it to charity and take a charitable deduction? After years of inflated claimed deductions, the Congress and the IRS tightened the rules.

A Checklist of the Basics

• Your client is an itemizer.

• Charity is qualified to receive tax-deductible contributions. To verify that an organization is a charity qualified to receive tax-deductible contributions, use the “EO Select Check” tool on the IRS website, http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Not all qualified organizations are listed in EO Select Check (Pub. 78 data). For example, churches, synagogues, temples, and mosques are not required to apply to the IRS for recognition of exemption to be qualified organizations and are frequently not listed. If you have 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 into account the various adjusted gross income ceilings on deductibility and the five-year carryover rules.

• The gift must be of a qualified vehicle: any motor vehicle manufactured primarily for use on public streets, roads, and highways; and a boat; or an airplane.

• The amount deductible for a vehicle contribution depends upon 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.

• Written acknowledgment required for deductions of over $500 must contain: taxpayer’s name and identification number; the vehicle identification number; and the date of the contribution, and 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; 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.

• Caution: If the acknowledgment doesn’t contain all required information, the deduction may not exceed $500.

Gross Proceeds Limit Applies. 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 to Gross Proceeds Limit. If one of the following applies, the taxpayer may be eligible to deduct the vehicle’s fair market value on the date it was donated: (1) the acknowledgment contains a statement certifying that the charity intends to 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 will not be sold before completion of the use; (2) the acknowledgment contains a statement certifying that the charity intends to make a material improvement to the vehicle, a detailed description of the intended material improvement and a certification that the vehicle will not be sold before completion of the improvement; or (3) the acknowledgment contains a statement certifying that the charity intends to give or sell the vehicle to a needy individual at a price significantly below fair market value 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.

• A special rule applies if the acknowledgment indicates that the donated vehicle sold for $500 or less. In this case, your client may claim a deduction for the lesser of the vehicle’s fair market value on the date of the contribution, or $500, provided she gets a written acknowledgment from the charity that complies with the requirements described under Written Acknowledgment for a Vehicle Contribution Deduction of $500 or Less.

Example 1: On April 1, client donated her car to the local food bank. When she donated the car, she had determined that the fair market value was $4,300. On November 10, the charity sold her car (to someone other than a needy individual), without any significant intervening use or material improvement, and received gross proceeds of $3,700. Her deduction may not exceed $3,700.

Example 2: The charity certifies in an acknowledgment that it will make significant intervening use of the vehicle by using it daily for at least a year to deliver food to needy individuals. Her deduction may not exceed the fair market value of her car, $4,300.

Example 3: The facts are the same as in Example 1 except the charity only received gross proceeds of $400 from the sale. Her deduction may not exceed $500.

Time and Manner of Providing Acknowledgment. Your client must get the written acknowledgment from the charity 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. Your client must attach the acknowledgment and Form 8283—Noncash Charitable Contributions—to her return.

• 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: Your client must obtain the written acknowledgment on or before the earlier of the date she files her return for the year she donated the vehicle, 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—e.g., an email addressed to the client. The acknowledgment shouldn’t be attached to the income tax return; but retained with client’s records to substantiate the donation.

• If an exception to the gross proceeds limit applies to your client’s deduction or if she is claiming a deduction of $500 or less, she will need to determine the vehicle’s fair market value as of the date of the contribution. Generally, “fair market value 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 fair market value, be sure that the sales price listed is for a vehicle that is 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 cannot exceed the price listed for a private-party sale. For more information on determining the value of donated vehicles, see IRS Publication 561—Determining the Value of Donated Property.

• For claimed deductions over $500, your client must attach to her return the written acknowledgment received from the charity. Depending on the amount claimed, she may have to get and keep certain records and file an additional form or statement to substantiate her charitable contributions.

• If the deduction claimed for a vehicle gift is greater than $500, but not more than $5,000, the client must complete Section A of Form 8283 and attach it to her Form 1040. If the deduction she claims is greater than $5,000, she must complete Section B of Form 8283, which must include the signature of an authorized official of the charity, and attach it to her return. In addition, if the deduction is over $5,000 and not limited to the gross proceeds from the sale of her vehicle, she 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. She must receive the appraisal before the due date (including extensions) of the return on which she 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 she files her income tax return (Form 1040 or Form 1040X), your client must complete Section B of Form 8283, and attach it to her return.

• If Section B is required and the charity sells or otherwise disposes of a vehicle within three years after the date of receipt, the charity must file Form 8282—Donee Information Return—with the IRS. I have dubbed Form 8282 the “tattletale” form. The charity reports information identifying the donor and itself, and the amount it received upon 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 the client avoid any liability problems after the vehicle is transferred.

For more rules on vehicle donations, see IRS Publication 4303—A Donor’s Guide to Vehicle Donations. If you represent a charity that receives donated vehicles, see IRS Publication 4302—A Charity’s Guide to Vehicle Donations. See also IRC §170(f)(12)—Charitable, etc., Contributions and Gifts (relating to vehicle donations); IRC §6720—Fraudulent Acknowledgments With Respect to Donations of Motor Vehicles, Boats, and Airplanes.

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.

Your clients are importuned year-round by charities to contribute their autos and other vehicles.

The typical situation is this: Your client buys or leases a new car. The dealer offers peanuts for his or her old car. So why not give it to charity and take a charitable deduction? After years of inflated claimed deductions, the Congress and the IRS tightened the rules.

A Checklist of the Basics

• Your client is an itemizer.

• Charity is qualified to receive tax-deductible contributions. To verify that an organization is a charity qualified to receive tax-deductible contributions, use the “EO Select Check” tool on the IRS website, http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

Not all qualified organizations are listed in EO Select Check (Pub. 78 data). For example, churches, synagogues, temples, and mosques are not required to apply to the IRS for recognition of exemption to be qualified organizations and are frequently not listed. If you have 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 into account the various adjusted gross income ceilings on deductibility and the five-year carryover rules.

• The gift must be of a qualified vehicle: any motor vehicle manufactured primarily for use on public streets, roads, and highways; and a boat; or an airplane.

• The amount deductible for a vehicle contribution depends upon 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.

• Written acknowledgment required for deductions of over $500 must contain: taxpayer’s name and identification number; the vehicle identification number; and the date of the contribution, and 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; 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.

• Caution: If the acknowledgment doesn’t contain all required information, the deduction may not exceed $500.

Gross Proceeds Limit Applies. 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 to Gross Proceeds Limit. If one of the following applies, the taxpayer may be eligible to deduct the vehicle’s fair market value on the date it was donated: (1) the acknowledgment contains a statement certifying that the charity intends to 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 will not be sold before completion of the use; (2) the acknowledgment contains a statement certifying that the charity intends to make a material improvement to the vehicle, a detailed description of the intended material improvement and a certification that the vehicle will not be sold before completion of the improvement; or (3) the acknowledgment contains a statement certifying that the charity intends to give or sell the vehicle to a needy individual at a price significantly below fair market value 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.

• A special rule applies if the acknowledgment indicates that the donated vehicle sold for $500 or less. In this case, your client may claim a deduction for the lesser of the vehicle’s fair market value on the date of the contribution, or $500, provided she gets a written acknowledgment from the charity that complies with the requirements described under Written Acknowledgment for a Vehicle Contribution Deduction of $500 or Less.

Example 1: On April 1, client donated her car to the local food bank. When she donated the car, she had determined that the fair market value was $4,300. On November 10, the charity sold her car (to someone other than a needy individual), without any significant intervening use or material improvement, and received gross proceeds of $3,700. Her deduction may not exceed $3,700.

Example 2: The charity certifies in an acknowledgment that it will make significant intervening use of the vehicle by using it daily for at least a year to deliver food to needy individuals. Her deduction may not exceed the fair market value of her car, $4,300.

Example 3: The facts are the same as in Example 1 except the charity only received gross proceeds of $400 from the sale. Her deduction may not exceed $500.

Time and Manner of Providing Acknowledgment. Your client must get the written acknowledgment from the charity 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. Your client must attach the acknowledgment and Form 8283—Noncash Charitable Contributions—to her return.

• 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: Your client must obtain the written acknowledgment on or before the earlier of the date she files her return for the year she donated the vehicle, 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—e.g., an email addressed to the client. The acknowledgment shouldn’t be attached to the income tax return; but retained with client’s records to substantiate the donation.

• If an exception to the gross proceeds limit applies to your client’s deduction or if she is claiming a deduction of $500 or less, she will need to determine the vehicle’s fair market value as of the date of the contribution. Generally, “fair market value 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 fair market value, be sure that the sales price listed is for a vehicle that is 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 cannot exceed the price listed for a private-party sale. For more information on determining the value of donated vehicles, see IRS Publication 561—Determining the Value of Donated Property.

• For claimed deductions over $500, your client must attach to her return the written acknowledgment received from the charity. Depending on the amount claimed, she may have to get and keep certain records and file an additional form or statement to substantiate her charitable contributions.

• If the deduction claimed for a vehicle gift is greater than $500, but not more than $5,000, the client must complete Section A of Form 8283 and attach it to her Form 1040. If the deduction she claims is greater than $5,000, she must complete Section B of Form 8283, which must include the signature of an authorized official of the charity, and attach it to her return. In addition, if the deduction is over $5,000 and not limited to the gross proceeds from the sale of her vehicle, she 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. She must receive the appraisal before the due date (including extensions) of the return on which she 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 she files her income tax return (Form 1040 or Form 1040X), your client must complete Section B of Form 8283, and attach it to her return.

• If Section B is required and the charity sells or otherwise disposes of a vehicle within three years after the date of receipt, the charity must file Form 8282—Donee Information Return—with the IRS. I have dubbed Form 8282 the “tattletale” form. The charity reports information identifying the donor and itself, and the amount it received upon 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 the client avoid any liability problems after the vehicle is transferred.

For more rules on vehicle donations, see IRS Publication 4303—A Donor’s Guide to Vehicle Donations. If you represent a charity that receives donated vehicles, see IRS Publication 4302—A Charity’s Guide to Vehicle Donations. See also IRC §170(f)(12)—Charitable, etc., Contributions and Gifts (relating to vehicle donations); IRC §6720—Fraudulent Acknowledgments With Respect to Donations of Motor Vehicles, Boats, and Airplanes.

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.