Church treasurers should be familiar with revised rules governing the donation of vehicles to charity. These rules assume that the claimed value of the donated vehicle exceeds $500. The rules are summarized in the following table. They apply to donations of cars, boats, and planes. A similar table was included in the February issue of this newsletter. The following table includes more recent changes made by Congress in the “Gulf Opportunity Zone Act.”
The Act imposes the following new requirements:
(1) The acknowledgment (Form 1098-C) issued by the charity must indicate if the charity provided any goods or services in exchange for the donated vehicle.
(2) The acknowledgment (Form 1098-C) must include a description and good faith estimate of the value of any goods or services provided by the charity to the donor, or, if such goods or services consist solely of intangible religious benefits (e.g., religious worship, teaching, sacraments) a statement to that effect.
Key point. The IRS announced recently that “notwithstanding these reporting requirements … [charities] may continue to use the current version of Form 1098-C to satisfy the requirements for a contemporaneous written acknowledgment until a new form is provided.” IRS Announcement 2006-1.
Donations of Vehicles to Charity
RuleForm of donationAmount of charitable contribution deductionCharity’s obligations
| 1 | A taxpayer donates a vehicle to a charity, and the charity sells it without any significant use or material improvement. | • Gross proceeds received by the charity from the sale of the vehicle.
• No deduction is allowed unless a donor itemizes expenses on Schedule A, and attaches a “written acknowledgment” (described in next column) or Form 1098-C to the tax return claiming the deduction. | • Provide the donor with a written acknowledgment within 30 days of the sale, containing donor’s name and social security number, vehicle identification number, date of contribution, date of sale, the gross proceeds from the sale, a certification that the vehicle was sold in an “arm’s length transaction” to an unrelated party, a statement that the deductible amount may not exceed the amount of the gross proceeds from the sale, and whether the charity provided any goods or services in consideration of the donation (and a description and good faith estimate of the value of any such goods or services, or, if the goods or services consist solely of intangible religious benefits, a statement to that effect).
• IRS Form 1098-C may be used as a written acknowledgment (if provided to the donor within 30 days of the sale). • Submit Form 1098-C to the IRS by February 28 of the following year. |
| 2 | A taxpayer donates a vehicle to a charity, and the charity “significantly uses” the vehicle (e.g., regular use over an extended period of time in performing the charity’s exempt purposes). | • Fair market value of the donated vehicle.
• A qualified appraisal, and appraisal summary (Form 8283), is required for a deduction in excess of $5,000 for a vehicle if the deduction is not limited to gross proceeds from the sale of the vehicle. • No deduction is allowed unless a donor itemizes expenses on Schedule A, and attaches a “written acknowledgment” (described in next column) or Form 1098-C to the tax return claiming the deduction. | • Provide the donor with a written acknowledgment within 30 days of the contribution, containing donor’s name and social security number, vehicle identification number, date of contribution, whether the charity provided any goods or services in consideration of the donation (and a description and good faith estimate of the value of any such goods or services, or, if the goods or services consist solely of intangible religious benefits, a statement to that effect), and a certification and description of (1) the intended significant intervening use by the charity and the intended duration of the use, and (2) a certification that the vehicle will not be sold before completion of the use.
• IRS Form 1098-C may be used as a written acknowledgment (if provided to the donor within 30 days of the contribution). • Submit Form 1098-C to the IRS by February 28 of the following year. |
| 3 | A taxpayer donates a vehicle to a charity, and the charity “materially improves” the vehicle (e.g., major repairs that significantly increase the vehicle’s value). | Same as Rule 2. | • Provide the donor with a written acknowledgment within 30 days of the contribution, containing donor’s name and social security number, vehicle identification number, date of contribution, whether the charity provided any goods or services in consideration of the donation (and a description and good faith estimate of the value of any such goods or services, or, if the goods or services consist solely of intangible religious benefits, a statement to that effect), and a certification and description of (1) the intended material improvement by the charity, and (2) a certification that the vehicle will not be sold before completion of the improvement.
• IRS Form 1098-C may be used as a written acknowledgment (if provided to the donor within 30 days of the contribution). • Submit Form 1098-C to the IRS by February 28 of the following year. |
| 4 | A taxpayer donates a vehicle to a charity, and the charity transfers it to a needy person for significantly below market value in furtherance of its charitable purposes. | Same as Rule 2. | • Provide the donor with a written acknowledgment within 30 days of the contribution, containing donor’s name and social security number, vehicle identification number, date of contribution, and whether the charity provided any goods or services in consideration of the donation (and a description and good faith estimate of the value of any such goods or services, or, if the goods or services consist solely of intangible religious benefits, a statement to that effect), and a certification that the charity will sell the vehicle to a needy individual at a price significantly below fair market value (or, if applicable, that it will gratuitously transfer the vehicle to a needy individual) and that the sale (or transfer) will be in direct furtherance of the charity’s exempt purpose of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.
• IRS Form 1098-C may be used as a written acknowledgment (if provided to the donor within 30 days of the contribution). • Submit Form 1098-C to the IRS by February 28 of the following year. |
This article first appeared in Church Treasurer Alert, April 2006.
