Donating A Vehicle to Charity
Donating a vehicle to charity is not that difficult. However, you need to be aware of the tax regulations before you donate your vehicle to a non-profit organization.
Significant Use & Material Improvements-
A) If the charity significantly uses or materially improves the vehicle, they must certify that in the form of an acknowledgment to the donor (within 30 days of the contribution).
In the case of significant use or material improvement, the donor may usually deduct the vehicle’s market value ($4,000 in the example above).
To be considered “significant use”:
1. An organization must use the vehicle to substantially further its regularly conducted activities.
2. The recipient organization’s use of the vehicle:
* must not be insignificant
* must not be intended at the time of the donation
Significance also depends on the frequency and duration of use by the non-profit organization.
“Material improvement” includes major repairs or other improvements that significantly increase the vehicle’s value.
Cleaning the vehicle, minor repairs, and routine maintenance are not material improvements.
B) Should the organization plan on selling your vehicle instead as a way of raising funds, the IRS provides some general rules of thumb:
1. Starting in 2006, if the claimed value of your donated car exceeds $500 and the item is sold by the charitable organization, your tax deduction is limited to the amount of money the charitable organization actually receives from selling the vehicle.
2. The charitable organization must provide you (the donor) with a written acknowledgment within thirty days of the sale, specifically stating the net amount they received for selling your donated car.
3. As an example, let’s say you make a car donation to a non-profit charity, and the fair market value of that car is $5,000. The charity then sells the car without “significant use” or “material improvement”, for a total sale price of $2,500. Your deduction is limited to $2,500, not the $5,000 fair market value.
This is substantially different than earlier years when you could deduct the entire estimated fair market value instead of the amount that the car donation actually raised for the charity.
See IRS Publication 561, Determining the Value of Donated Property
For more information, please call 212-862 1111
NOTICE: Please note that the above does not constitute tax advice and is provided with this disclaimer that you should talk with your accountant for guidance regarding your specific tax situation and to determine to what extent (if any) you will benefit from this tax credit. Some taxpayers may not realize the maximum tax benefit so all donors are urged to seek advice from their own accountant.