Charitable giving: Planes, boats and automobiles

Executive summary: Maximizing the charitable contribution deduction for contributing a vehicle

When donating a vehicle to charity, there are a number of important considerations of which donors must be aware if they intend to take the charitable contribution deduction. The rules related to deductible amounts and substantiation requirements for the donation of qualified vehicles differ from those for other types of property donations. To maximize the tax benefit of their charitable contribution, donors should be aware of these differences and limitations before donating a qualified vehicle to charity, primarily the requirement to obtain a contemporaneous written acknowledgement letter within 30 days of the donation (or subsequent sale by charity).

Q1: What is a qualified vehicle?

A1: A qualified vehicle is:

• any motor vehicle manufactured primarily for use on public streets, roads, and highways;
• a boat; or
• an airplane.

Exception: A vehicle held primarily for sale to customers, such as inventory of a vehicle dealer, is not a qualified vehicle.

Q2: What is the amount of my charitable contribution deduction with respect to the donation of a qualified vehicle?

A2: The amount a taxpayer may deduct depends upon what the recipient charity does with the vehicle.

• Charity sells the vehicle: Generally, lesser of fair market value or gross proceeds from the sale.
• Charity makes significant intervening use or material improvement to the vehicle: Generally, fair market value.

Q3: How do I know what the charity does with the vehicle?

A3: The charity must provide the donor with a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, or other contemporaneous written acknowledgement that details the charity’s use of the vehicle. See Q&A 4 through 7 for more information.

Q4: Is the charity required to provide me with a Form 1098-C?

A4: No. The recipient charity may use Form 1098-C or provide its own statement containing the required information (as described in Q&A 5 through 7) to satisfy the contemporaneous written acknowledgement.

Q5: What must be contained in the contemporaneous written acknowledgement (CWA)?

A5: All CWAs must include the following information, but see Q&A 5 and 6, below for additional requirements:

• Donor’s name and taxpayer identification number.
• Vehicle identification number (VIN).
• Date of the contribution.

One of the following:

• A statement that no goods or services were provided by the charity in return for the donation.
• A description and good faith estimate of the value of 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.

Q6: What if the charity sells or intends to sell the donated vehicle?

A6: Generally, if the charity sells the donated vehicle, the taxpayer’s deduction is limited to the gross proceeds the charity receives from its sale.

In addition, the CWA must contain the information set forth in Q&A 4 and the following details:

• A statement certifying that the vehicle was sold in an arm’s length transaction between unrelated parties.
• The date the vehicle was sold.
• The gross proceeds received from the sale.
• A statement that the taxpayer’s deduction may not exceed the gross proceeds from the sale.

Q7: What if the charity has a significant intervening use (i.e., decides to keep and use the vehicle)?

A7: Generally, if a charity intends to make significant intervening use of the donated vehicle, the taxpayer’s deduction is the vehicle’s fair market value on the date of the donation.

Significant intervening use means that a charity must use the vehicle to substantially further its regularly conducted activities, and the use must be considerable. There is no significant intervening use if the charity’s use is incidental or not intended at the time of the donation.

In addition, the CWA must contain the information set forth in Q&A 4 and the following details:

• A statement certifying that the charity intends to make a significant intervening use of the vehicle.
• A detailed description of the intended use.
• The duration of that use.
• A certification that the vehicle will not be sold before completion of the use.

Q8: What does it mean to be contemporaneous?

A8: The donor must obtain the CWA within 30 days of the contribution date or if the charity sells the vehicle, the date of sale.

Q9: Is a qualified written appraisal required?

A9: No, if the deduction is limited to the gross proceeds from the sale of the vehicle. Yes, if the deduction is over $5,000 and not limited to the gross proceeds from the sale of the vehicle.

Q10: Are there further resources for more information about charitable contributions of vehicles?

A10: Yes, IRS Publication 4303 contains a wealth of information about the recordkeeping and filing requirements for taxpayers who donate vehicles to charity.