10 things you should know for profitable car donation
Are you thinking of selling or trading in that old car? Why not donate it instead? Even if it hasn't run in years or broken. Vehicle donation to charities in US is tax-deductible.
This article was made from dozens of FAQ's on "Donate A Car" websites and official Internal Revenue Service(IRS) Publications.
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If you donate a car, boat, or airplane your deduction generally is limited to the gross proceeds from its sale by the qualified organization. This rule applies if the claimed value of the donated vehicle is more than $500.
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However you are permitted to claim the full Fair Market Value of your car donation if the vehicle falls into one of these categories:
- Significant repairs are made to the vehicle before the car donation charity sells the vehicle.
- The charity uses the vehicle donation for its nonprofit purpose.
- The vehicle is sold at a reduced price by the charity to low income families as part of their charitable purpose.
Example 1: On April 1, 2005, you donated your car to the local food bank. When you donated the car, you had determined that the fair market value was $4,300. On November 10, 2005, the charity sold your car (to someone other than a needy individual), without any significant intervening use or material improvement, and received gross proceeds of $3,700.
Your 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.
Your deduction may not exceed the fair market value of your 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 ale.
Your deduction may not exceed $500.
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When you donate a car to charity and your vehicle is sold by the charity you can claim a tax deduction for the sale value of your donated vehicle. For vehicles that sell for $500 or less the charity will simply provide the original pickup receipt and you can claim up to $500 for your car donation according to the actual value of the donated vehicle.
If the sale price of your vehicle donation is more than $500, then you will receive a second receipt from the car donation charity with the actual sale amount -- and you can claim the full amount of the vehicle sale as a deduction.
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In according to IRS Publication 561 (10/2005), Determining the Value of Donated Property you DO NOT need an appraisal if the donation property is a car, boat, or airplane and deduction with limited to gross proceeds. Even through deductions is more than $5,000.
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Selecting a Charity
If you are eligible to deduct charitable contributions for federal income tax purposes and you want to claim a deduction for donating your vehicle to charity, then you should make certain hat the charity is a qualified organization. Otherwise, your donation will not be tax deductible. The most common types of qualified organizations are section 501(c)(3) organizations, such as charitable, educational, or religious organizations. To verify that an organization is a charity qualified to receive tax-deductible contributions, see IRS Publication 78, Cumulative List of Organizations, an annual list of most charities.
Not all qualified organizations are listed in Publication 78. For example, churches, synagogues, temples, and mosques are not required to apply to the IRS for recognition of exemption in order to be qualified organizations and are frequently not listed.
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Qualifying for a Tax Deduction
You can deduct contributions to charity only if you itemize deductions on your Schedule A of Form 1040. You must take into account certain limitations on charitable contribution deductions. For example, your deduction cannot exceed 50% of your adjusted gross income. Other limitations may apply. Publication 526, Charitable Contributions, provides detailed information on claiming deductions and the deduction limits. It also describes the types of organizations that are qualified to receive taxdeductible contributions.
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WRITTEN ACKNOWLEDGMENT FOR VEHICLE CONTRIBUTION DEDUCTION OF MORE THAN $500
all acknowledgments must contain the following information:
- your name and taxpayer identification number,
- the vehicle identification number,
- 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.
Note: If the acknowledgment does not contain all required information,
the deduction may not exceed $500.
Gross Proceeds Limit Applies - Generally, if the charity sells your vehicle, your deduction is limited to the gross proceeds the charity receives from its sale. In addition to the information indicated above, the contemporaneous written acknowledgment must contain:
- a statement certifying that the vehicle was sold in an arm’s length transaction between unrelated parties,
- the date the vehicle was sold,
- the gross proceeds received from the sale, and
- a statement that your deduction may not exceed the gross proceeds from the sale.
FORM 8283, NONCASH CHARITABLE CONTRIBUTIONS
If the deduction you are claiming for a donated vehicle is greater than $500, but not more than $5,000, you must complete Section A of Form 8283 and attach it to your Form 1040. If the deduction you are claiming is greater than $5,000, you must complete Section B of Form 8283, which must include the signature of an authorized official of the charity, and attach it to your return.
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As many charities does not running own car donations program, they use professional services of for-profit companies. Usually the for-profit company retains the lion’s share of the proceeds of the sale of the vehicles at auction, with the charity receiving in many instances, less than 10% of the donation. If you are donating to charity because of convenience, you should find out charity in your state with their own donation program.
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Donors need to be extremely careful when donating to a program that claims to offer fair market deductions as each individual vehicle is examined to determine the tax status of the vehicle. The IRS has issued a warning about questionable deductions for donated vehicles.
posted by proglammer @ 10/24/2006 10:47:00 PM
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