A friend and client whose car recently
“died” told me he may donate it to charity for a tax deduction. So I thought I would review the rules for
donating a car.
I have seen a lot of ads that entice
you to donate your car to a charity and get a tax deduction - but you should be aware . . .
First, you will get no tax benefit from donating
your personal automobile to charity unless you can itemize on Schedule A! This
means the total of your “itemizeable” deductions exceeds your applicable Standard
Deduction amount. While the donation
itself can put you over the top and cause you to be able to itemize, to get the
maximum tax benefit you must be able to itemize without the car donation.
Years ago a client expressed true joy
when telling me she donated her car to charity, and she expected to get a big
tax deduction. Her tax benefit from the
deduction was zero, nothing, nada. She
was not able to itemize, and had not in the past, and even with the addition of
the value of the car she was still not able to itemize.
FYI – you may want to itemize if your total
deductions do not exceed your applicable Standard Deduction amount if you are a
victim of the dreaded Alternative Minimum Tax (AMT). The Standard Deduction is not allowed in
calculating AMT, but an itemized deduction for charitable contributions is.
Second, the amount you receive “in your
pocket” will be only a small percentage of the car’s value. The amount of cash you will realize depends
on your federal and, if your state allows a similar tax deduction (New Jersey
does not), state tax bracket. If the allowable deduction is $1,000.00 a New
Jersey resident may only realize $150.00 or $250.00 “in pocket”.
And third, you have to wait to file your tax
return to get the money. If you donate a car to charity today you will not see
the cash until at least next February.
That said, here is what I wrote about
donating a car to charity in my CHARITABLE CONTRIBUTIONS GUIDE -
When you donate a vehicle (car,
motorcycle, boat, or airplane) to a church or charity the amount you can deduct
depends on what the organization does with the donated vehicle.
(1) If the organization sells the
vehicle without significant interim use or material improvement your tax
deduction is limited to the gross proceeds from the sale.
(2) If the organization intends to
temporarily or permanently use the vehicle in its operations, or make
"material" improvements to the vehicle before selling it, or sell the
car to a "needy" individual at a price that is significantly below
market value, or give the car to such an individual, 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 (www.kbb.com) or a similar established used vehicle pricing
guide. If the fair market value of the vehicle is more than
$5,000.00 you must obtain a formal appraisal.
To claim a deduction of more than
$500.00 for donating a motor vehicle to charity you must include Copy B of the
IRS Form 1098-C, provided by the charity, with the filing of your Form 1040.
The Form 1098-C will include the name
and Taxpayer Identification Number of the donee organization, the vehicle
identification number, the date of contribution, and information on what the
charity did with the vehicle. 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 donee organization. The charity can give you a statement in lieu
of Form 1098-C as long as it contains all the necessary information discussed
above.
Any questions?
TTFN
One other thought on this matter. If the car can be traded-in many times I find a taxpayer donating the car for the same value as the trade-in. If there is a true trade-in at say $2,000 that is better than a deduction of $2,000 times the tax bracket of the taxpayer. Too many taxpayers miss this point.
ReplyDeletePaul Dion CPA