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Under new rules that first apply for post-2004 contributions, the deduction for "qualified vehicles" (motor vehicles, boats and planes that are not inventory or held for sale in the ordinary course of business) contributed to charity for which the claimed value exceeds $500 is dependent on the charity's use of the donated property.
If the charity sells the vehicle without any "significant intervening use" or "material improvement," or transfers it to other than a needy person at a price significantly below fair market value in furtherance of its charitable purpose, the donor's charitable deduction can't exceed the charity's gross proceeds from the sale.
The IRS has released new Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. Donee organizations must provide a copy of the 1098-C to the IRS and the taxpayer to report donations of qualified vehicles with a claimed value of more than $500. Taxpayers must attach a copy of the 1098-C to their Federal income tax return in order to claim a charitable deduction for such qualified vehicle donations. A representative from the IRS specifically stated that the deduction would be disallowed if there were no 1098-C.
The charitable organizations will be issuing the 1098-C soon after the vehicle is sold rather than at the end of the year when most important tax documents are issued. When you receive a 1098-C, make sure to file it in a safe place, or better yet, send, fax or email us a copy so that we can retain it with your tax records.
If you are considering donating a vehicle, a charity that will use the car and not sell it, would result in a donation at fair market value and not be limited to gross proceeds from sale of the vehicle (typically at auction).
Posted: February 2006