John M. Hoffman & Associates CPAs

Frequently Asked Tax Questions

Charitable Contributions

 

Donations of Vehicles (Cars, Boats, Planes)

For years people would hear those advertisements touting that your used car was worth more as a charitable donation. People were donating their car to a charity and claiming some inflated blue book value rather than what a 1997 Dodge Caravan with 250,000 miles, worn tires and the distinctive smell of spilled apple juice throughout the cloth upholstery and carpet was really worth. They thought that this "gem" should be valued at $3,500 for purposes of claiming a tax deduction. People were confusing trade in value with suggested retail value. Suggested retail value is what you might pay to buy that car from a dealer, after the dealer put on new tires, cleaned up the car, and offered some limited warranty and lemon law protection. Trade in value is what that dealer will give you for that car before they add all these features and a profit for themselves. Trade in value is what people should have been claiming as a tax deduction.

To put an end to this abuse, the IRS now requires the charity to report to the taxpayer (on form 1098-C) the gross proceeds from the sale of the vehicle by the charitable organization, and that is the amount of your deduction.

There are two exceptions to this rule:

If the vehicle is worth less than $500, you can claim your fair market value estimate without limit of the proceeds received by the organization.

If the vehicle is used by the charitable organization for its charitable purpose, you can claim the estimated fair market value without the $500 limitation. An example would be donating a van to a school or a boat to a charitable school or camp.