The American Jobs Creation Act of 2004 changed the rules for claiming a charitable contribution deduction for donations of used vehicles to charity. The new rules took effect this year. It is important for church treasurers to be familiar with the new rules for two reasons. First, churches have reporting requirements that must be followed; and second, church treasurers need to be ready to explain the rules to members who indicate an interest in donating a car to the church.
The charity sells the donated car withno significant use or material improvement
Beginning in 2005, if the claimed value of a donated car exceeds $500 and the car is sold by the charity, the donor’s charitable contribution deduction is limited to the gross proceeds from the sale. Prior to 2005 taxpayers could deduct the fair market value of a donated car. Under the new rules, the charity must:
(1) provide the donor with a “contemporaneous written acknowledgement” within 30 days of the sale listing the information specified by the tax code (the donor’s name and social security number, the vehicle identification number, date of sale, a certification that the vehicle was sold in an arm’s length transaction, and the gross proceeds from the sale), and
(2) submit the same information to the IRS by February 28 of the following year.
A church must use IRS Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) to provide the required information to the IRS. It may use the same form to provide a “contemporaneous written acknowledgment” to the donor.
Significant use or material alteration of the donated car
Beginning in 2005, if the claimed value of a donated car exceeds $500 and the charity “significantly uses or materially improves” the car, the donor may be able to deduct the car’s market value. In addition, the church has the following reporting requirements:
(1) provide the donor with a “contemporaneous written acknowledgement” within 30 days of the date of the contribution listing the information specified by the tax code (the donor’s name and social security number, the vehicle identification number, date of sale, a certification that the vehicle was sold in an arm’s length transaction, and the gross proceeds from the sale), and
(2) submit the same information to the IRS by February 28 of the following year.
A church must use IRS Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes) to provide the required information to the IRS. It may use the same form to provide a “contemporaneous written acknowledgment” to the donor.
Key point. The IRS recently released Form 1098-C, which charities can use to provide a contemporaneous written acknowledgment to a person who donates a used car. Charities must use this form to report the same information to the IRS. File Copy A of this form with the IRS by February 28, 2006 for vehicle donations made during 2005.
Example. On October 1, 2005, Don contributes a vehicle with a fair market value of $2,500 to his church. On December 1, 2005, the vehicle is sold without any significant intervening use or material improvement. Gross proceeds from the sale are $1,000. The church must provide Don with a “contemporaneous written acknowledgment” of the donation by December 31, 2005. It may use IRS Form 1098-C to ensure that it has met all of the requirements for a contemporaneous written acknowledgement. It must use Form 1098-C to provide the same information to the IRS, by February 28, 2006. You may obtain this form from the IRS website (www.irs.gov).
Example. Same facts as the previous example except that the church plans to use the donated car several times a week in the course of church activities. If the church “significantly uses” the car, it must certify this intended use (and duration) and provide a written acknowledgement to Don within 30 days of the contribution. The church may use IRS Form 1098-C to comply with these requirements. It must use Form 1098-C to provide the same information to the IRS, by February 28, 2006.
This article first appeared in Church Treasurer Alert, October 2005.
