Thursday, August 7, 2008


Congress changed the rules for deducting the contributions of a vehicle to charity a few years back.

In order to claim a deduction of more than $500 for donating a motor vehicle (car, motorcycle, boat, or airplane) to charity, you must attach Copy B of the IRS Form 1098-C, which has been provided by the charity, to the Form 8283 that is included in your 1040.

The Form 1098-C will include the name and Taxpayer Identification Number of the charity to whom the car has been donated, the vehicle identification number of the auto, and the date of contribution. Form 1098-C must be issued within 30 days of either the date of the contribution or the date of the disposition of the vehicle by the charity.

If you donated, or will donate, a car to charity in 2008 that is worth more than $500 make sure to get Copy B of Form 1098-C from the charity before the end of the year. If you have not received it by the middle of December you should call the charity and ask for it. The charity can give you a statement in lieu of Form 1098-C as long as it contains all the necessary information discussed below.

It is possible that you donate a car to charity in late 2008 and the car is not sold by the charity at auction until 2009. Just note that if you want to claim a deduction of more than $500.00 for the car you must have a Form 1098-C to include with the mailing of your 2008 Form 1040.

Besides the items listed above, additional information will be included on the Form 1098-C depending on what the charity does with the donated car.

(1) If the charity sells the car without significant interim use or material improvement, the Form 1098-C will include the date the vehicle was sold by the charity, certification that the sale was an "arm's length" transaction among unrelated parties, and the gross proceeds from the sale. Your tax deduction is limited to the gross proceeds from the sale.

(2) If the charity intends to temporarily or permanently use the car in its operations, or intends to make "material" improvements to the vehicle before selling it, the Form 1098-C will include a certification and description of either the significant interim use and intended duration of such use or the intended material improvement and a certification that the vehicle will not be sold before such use or improvement is completed.

(3) If the charity intends to sell the car to a "needy" individual at a price that is significantly below "fair market value", or give the car to such an individual, the Form 1098-C will include a certification that the charity will make such a sale or transfer of the vehicle, and that the sale or transfer will be in direct furtherance of the organization's charitable purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.

In situations (2) and (3) you can deduct the "fair market value" of the vehicle. You can use the "private party value" for the vehicle, adjusted for mileage and condition, as listed in the Kelly Blue Book or a similar established used vehicle pricing guide. If the fair market value is more than $5,000 you must obtain a formal appraisal, a copy of which must also be attached to your Form 8283. In these situations the charity will not provide a value - the taxpayer making the contribution must provide and substantiate the fair market value of the car donated.

To recap - in situation (1) the donee charity will tell you what you can deduct. In situations (2) and (3) the donor taxpayer must determine the amount of the deduction, subject to audit by the IRS.
FYI, check out TAX GIRL's post "IRS Car Charity Rules Drives Donations Down".

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