Lewes CPA
officeProgar & Company, P.A.
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Donating a used car to charity (MS Word)
Donating a used car to charity (.pdf)
Donating a used car to charity
Dear Reader:
One of the negative aspects of buying a new car is the annoyance
involved with getting rid of your old car. Many individuals find the
trade-in allowance offered by dealers (if any) to be well below the
car's true value. But the alternative of selling the car on your own
involves the expense of advertising as well as the commitment of
time needed to meet with potential buyers, accompany them on test
drives, negotiate a fair price, etc.
For these reasons, some taxpayers consider a different option for
their old cars: donating them to charity. An increasing number of
charities have turned to car-donation programs. You may have seen
ads from some of these organization in your local newspaper urging
individuals to donate their old cars. The donation approach saves
you the trouble of trying to sell the car. Many charities offer the
added convenience of picking up the car at your home.
In taking this approach, however, bear in mind that the amount of
the deduction you will be allowed to claim is subject to special
limitations. In many cases, the deduction you can claim is less than
your view of the car's value. If you compare the tax savings from a
donation with a dealer's trade-in offer, the offer may not seem as
small.
For cars worth over $500, the deduction will be the amount for which
the charity actually sells the car, if it sells the car without
materially improving it. This limit applies to any motor vehicle
designed for road use, including vans and trucks, as well as to
boats and airplanes.
Since most charities do sell the cars they receive, it's likely that
your donation will be limited to the actual sale price. Furthermore,
these sales are often at auction or in bulk and typically result in
sales below “Blue Book” value. Also, you won't know the amount of
your deduction until the charity has sold the car and reported the
sale proceeds to you (see below).
Only if the charity uses the car in its operations or materially
improves the car before selling it will your deduction be based on
the car's fair market value at the time of the donation. In that
case, fair market value is usually set according to the “Blue Book”
listings for used cars published by the National Automobile Dealers
Association. IRS will accept the value in the “Blue Book” or another
established used car pricing guide if the guide lists a sales price
for a car that is the same make, model, and year, sold in the same
area, and in the same condition, as the car you donated. In some
cases, this value will exceed the amount you could actually get on a
sale.
However, if the car is in poor condition, because it needs
substantial repairs or is unsafe to drive, and the pricing guide
only lists prices for cars in average or better condition, the guide
won't set the car's value. Instead, you must establish the car's
true market value by any reasonable method. Many used car guides
show how to adjust value for items such as accessories or mileage.
In any case, you must itemize your deductions to get the tax
benefit; you can't take a deduction for a car donation if you take
the standard deduction.
Making sure the charity qualifies and is legitimate.
You won't be entitled to a charitable deduction unless you donate
your car to an eligible charitable organization. In some cases, the
transaction is more complex because private fund-raisers may be
operating car donation programs on behalf of charities. This is
legitimate as long as the private company is acting as the agent for
a qualified charity. I can help if you have any doubts about the
qualification of any donee you are considering.
Proving your right to the deduction.
If you donate your used car to charity, make sure you take the steps
needed to substantiate your tax deduction.
If the charity sells the car, you will need a written
acknowledgement from the charity containing your name and tax ID
number, the vehicle ID number, a certification that it was sold at
arm's length to an unrelated party, the gross proceeds of sale, and
statement that the deduction cannot exceed the proceeds. The charity
should provide you with this acknowledgement within 30 days of the
sale.
If, instead, the charity will use (or materially improve) the car,
the acknowledgement needs to certify the intended use (or
improvement) and the intended duration of the use, along with a
statement that the car will not be sold before completion of the use
or improvement. In this case, the acknowledgement should be provided
within 30 days of the donation.
If you'd like to discuss the pros and cons of a car donation
further, please call.