The IRS Has Special Rules For Vehicle Donations

TaxConnections Picture - Car Yellow - square

From time-to-time, nonprofit organizations may be donated a vehicle, boat, or airplane as a charitable contribution.  The IRS realized that this was an area in which taxpayers were abusing the law, often taking a deduction far in excess of the actual value of the vehicle being donated.  For example, in one instance a vehicle was ready for the junk pile but the donor gave it to a charitable organization. Based on the Kelley Blue Book Value it had a fair market value of $1,200, which the donor used as a charitable contribution deduction on his Form 1040.  So several years ago, more restrictive rules were put in place in regard to the amount that may be deducted as a charitable contribution.

The long-standing rule for non-cash charitable contributions states that any such contribution valued in excess of $500 must be reported on Form 8283 and included with the donor’s 1040.  As with all non-cash contributions, the valuation of the donation is the responsibility of the donor.

Today, different rules apply if the non-cash contribution consists of a vehicle, boat, or airplane.  The IRS has established rules limiting the amount of the contribution.  The donor may deduct the amount for which the vehicle was sold by the recipient organization.  If the organization kept the vehicle for use in furthering its exempt purpose, fair market value may be deducted.

When an included item is donated, Form 1098-C must be provided by the organization to the donor within 30 days of the sale of the vehicle or within 30 days of the donation if the organization keeps the property.  This 30-day rule is frequently overlooked by donors and organizations, as it is outside the regular reporting cycles of quarterly or annual reporting.  Many organizations are simply unaware of the requirement to file this form.

The form requests a fairly significant amount of information.  In addition to the donor’s name, address, and social security or tax ID number, the 1098-C must include the proceeds that the organization realized from the sale of the asset.  If the asset is transferred to a needy individual or sold for significantly below fair market value in furtherance of the organization’s exempt purpose that must be indicated. If the organization keeps it for use in its exempt purpose, that box must be checked.  The vehicle year, make, model, mileage, and VIN number must also be provided.

Finally, the organization must indicate the value of goods or services provided in exchange for the vehicle.  This appears to be another area where organizations are ignoring the law or are unaware of it, as I frequently hear ads on the radio that one can get a charitable contribution deduction for the donations plus the organization will give you a free cruise.  Since the cruise supposedly has value, the organization may be remiss in its reporting obligations.

Charitable giving a good thing, as it helps meets societal needs. However, donors and charitable organizations must not overlook the legal requirements that are imposed on both parties.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

Facebook Twitter LinkedIn YouTube Skype 

Leave a Reply

Your email address will not be published. Required fields are marked *

seven − five =