After my 27 years in the USAF, I’m convinced that military members are some of the most generous people in the world. Folks routinely give of their time, money and possessions to help those less fortunate than themselves. If you have considered donating a car to charity, you may be confused by claims by some charities that you will get a greater tax benefit if you donate your car to them. Why would that be? Does the government/IRS like certain charities better than others? What it really comes down to is not a difference in charities, but a difference in what the charity does with the vehicle. If the charity sells the car then you get one deduction…if the charity gives the car away as part of its charity “mission” you get another. As with all things related to the IRS, the rules are a little tricky and you should get competent tax advice…but here are the basics.
Charity Sells the Car. If the charity sells the vehicle to fund its overall mission then you can deduct the lesser of the Fair Market Value on the date of contribution or the gross proceeds from the sale. The charity may sell it for less than what the tax code allows you to claim as the Fair Market Value. If you donate a car worth over $500 the charity will provide you with the gross proceeds on a form 1098-C which you must file with your individual tax return.
Charity Gives Vehicle Away. If the charity will give the vehicle (or sell it significantly below the market value) to a needy individual to “further the organization’s charitable purpose” you can deduct the Fair Market Value on the date of contribution of the vehicle. As in the situation above, the charity should provide you with a 1098-C and if the charity gives the vehicle away, the form will document that fact.
There are a couple of other special circumstances such as if the vehicle is worth more than what you paid for it or if the charity uses the vehicle or improves it. But for most of us that won’t likely be the case. If you are in that situation reference IRS Pub 526.
Also, if the charity hasn’t disposed of the vehicle prior to your tax return due date you’ll have a couple of choices.
- Request an extension for your return or
- File your return on time and file an amended return when you get the 1098-C from the charity.
So as with all tax related articles/issues…so what? Well, you probably won’t chose a charity to donate a vehicle to based upon whether they will sell it or give it away. But, if you are thinking about using a vehicle as a donation and you know the charity will sell it, you might want to consider selling it yourself and then donating the cash to the charity. You could potentially get a bigger deduction and the charity could potentially get more cash for their mission. Of course, selling the vehicle and donating the cash takes time on your part, but it just might be worth it.
Curt Sheldon is a Fee-Only Financial Planner based in Northern Virginia. He can be contacted at (703)542-4000, (800)928-1820 or Curt@CLSheldon.com
IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication
The information contained in this blog is for general financial education and should not be construed as individual financial advice. Please consult your own financial, tax or legal advisor prior to applying any principles discussed here to your own financial situation.