Posted by : Daniel Stoica in (Articles, Tax Deductions, Tax Return, Tax Tips) On: July 2nd, 2011
Tagged Under : 1040 Form, 1098-C, 501c3, 8283 Form, accounting professional, Airplanes, Boats, charity, Contributions of Motor Vehicles, Cumulative List of Organizations, Daniel Stoica, deduction, donating, fair market value, IRS, itemized, Non-Cash Charitable Contributions, Publication 78, Schedule A, social security number, tax professional, taxpayer ID, vehicle, Vehicle Identification Number, VIN
1. The deduction for the donation of your vehicle must be itemized. You will use Schedule A on your 1040 Form. Make sure to include all pertinent information about the vehicle. The deduction must also not be more than half of your adjusted gross income.
2. The charity where you donated your vehicle must be IRS eligible for cash or non-cash donations. Visit the IRS web site and look for Publication 78, The Cumulative List of Organizations. All recognised 501c3 organizations are listed.
It is crucial that you check the 501c3 status of the charity BEFORE you donate. Another option to find this out is by calling the IRS Division for Tax Exempt and Government Entities.
You are entitled to ask for documents from any charity to prove that they are eligible. They will give you a copy of their application for tax-exempt status, their determination letter from the IRS, and their most recent tax returns. They will not charge you for this information, but they can charge to make copies and/or postage.
3. The vehicle must not be owned simply for the purpose of making a profit off of it. A dealership cannot take a tax deduction from donating a vehicle to charity.
If you plan to donate your vehicle just for the tax deduction, you should know the rules.
Before 2005, you were able to donate a vehicle to a qualifying charity and claim the fair market value, which is the actual sales price of the donated vehicle. Now, however, you can deduct no more than the amount the donated vehicle made at auction, or $500, whichever is less. The standard amount is anywhere between $200 and $500.
You can still qualify for the fair market value of your donated vehicle one of two ways:
The charity must write up a statement claiming they will use the vehicle for a specific purpose and explain that purpose. They can also state that the vehicle will be donated to a needy individual, but that the sales price will be below the market value.
The charity also needs to give you a statement that they will make repairs or improvements to the vehicle. The statement must include what repairs or improvements will be done, and a promise that they will not sell or donate the vehicle until the repairs are finished.
These statements must include your name, taxpayer ID (or Social Security Number), the VIN (Vehicle Identification Number), and the date of donation. The charity will then fill out a 1098-C Form, Contributions of Motor Vehicles, Boats and Airplanes.
The charity will also give you an acknowledgement, or receipt of your donation. It will be in the form of an 8283 Form, Non-Cash Charitable Contributions. They should have this form to you within 30 days of your donation. Attach it to your tax return when you file.