tax breaks — December 18, 2014

Putting the Sleigh on Wheels

by Bob Williams

Charitable Donations

It’s pretty obvious that the holiday season is one of the easiest times to be generous. It’s what it's all about, right? And, as you’ve read from us before, it’s one of the most advantageous seasons for giving from a tax perspective.

But what if we’re giving something bigger than those dollar bills we drop into that red kettle every year? What if your sleigh … has wheels?

Donating your former favorite ride to the charity of your choice is pretty easy. Follow the guidelines from the elves at the IRS, and you could get a nice little something in your stocking this Christmas. Sure beats a lump of coal, doesn’t it?

Step One: The Charity

To make sure you get the maximum benefit from your automotive donation, first and foremost make sure the charity you donate to is listed as a non-profit charity with the IRS. This makes it a “qualified organization” in the eyes of the IRS, and clears the way for your stocking stuffer.

Not sure if a charity qualifies? The IRS has an Exempt Organization Select Check tool to help you out. This can verify whether your charity is a registered 501c(3) organization. If your charity is a church, synagogue, temple or mosque, they’re not required to file with the IRS for tax-free status, and they won’t be in the list, but they're still eligible for the deduction. If you still have questions, give the IRS Customer Account Services division a call at (877) 829-5500. You’ll need the charity’s exact name. If you have the charity’s address, that helps too.

Step Two: The Deduction

To qualify for the deduction from a donated vehicle, you must itemize deductions. There are limitations, of course. For example, your deduction can’t exceed 50 percent of your adjusted gross income (AGI).

Although itemizing deductions may not have made good tax sense before, that may change considerably when you donate a vehicle. If your total deductions are more than the $6,200 standard deduction for singles ($12,400 for married couples filing jointly), by all means, itemize.

Step Three: The Paperwork

Just how much you can deduct may depend, believe it or not, on what the charity does with your former ride once they get it. Most times, a charity will sell a vehicle that’s donated. If that’s the case, generally your deduction will be limited to the gross proceeds from the sale. But not always.

For any donation of a vehicle worth more than $500, you need a written acknowledgement of your donation from the charity. And it’s more than just “you-gave-us-this-on-this-date” kind of thing. Because your planned deduction hinges on what the charity does with the vehicle, the written acknowledgement should contain:

  • Your name and Social Security Number
  • The Vehicle Identification Number (VIN) from the donated vehicle
  • The date of the donation, 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 the goods or services, if any, that the charity provided in return for the donation
    • A statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case

Take care to look over your written acknowledgement. If the required information isn’t in there, the IRS will limit your deduction for the vehicle to just $500 – no matter how much it sold for.

And while most vehicle donations will net you a deduction the size of the gross sale price, you might get the vehicle’s fair market value as of the day it was donated. If the charity actually uses the vehicle before it’s sold, make substantial improvements to the vehicle before they sell it, or if the charity gives or sells the vehicle to a needy individual substantially below fair market value, you could deduct the fair market value (as determined by a legitimate appraiser) on your taxes. Any of these conditions would have to be stated in the written acknowledgement.

From clunkers to collectibles, donating a vehicle to charity can make good philanthropic sense, as well as good tax sense. If you’ve got an extra set of wheels around the place and want to them to good use, consider donating before 2015. You’ll get a tidy deduction for 2014, and your charity of choice will get some needed year-end revenue.

My, you’re looking very elfish these days!

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