Donating a used automobile or boat to charity benefits a good cause while providing a tax deduction. Care must be exercised, however, in order to avoid an IRS challenge to the donation.
When property is contributed to a qualified organization, the amount of the charitable contribution is the property’s fair market value - or the price that a willing buyer would pay a willing seller - on the contribution date. There are commercial guides avail-able, commonly called "blue books," which provide estimated automobile values based on dealer aver-age prices. These prices are not "official" and are not considered to be qualified appraisals. "Blue book" values must be adjusted to reflect the actual condition of the automobile. For example, if an automobile needs extensive repairs, the estimated cost of those repairs must be deducted from the "blue book" value to arrive at the true fair market value of the charitable contribution. If the value of the automobile is greater than $5,000, you must obtain a qualified written appraisal from a qualified appraiser. Except for inexpensive small models, the value of boats should be based on an appraisal by a marine surveyor because the physical condition is critical to the value.
It is important to keep written records for each item of donated property, including:
- Name and address of the donee organization
- Date and location of the contribution
- Fair market value of the property at the time of the contribution and how it was determined or a signed copy of the appraisal
- A receipt from the charitable organization de-scribing the condition, model and year of the vehicle
- Records to show that the vehicle was in running condition when donated (a photograph, repair bills and/or tentative written offers by car dealers)
- The original cost of the property and/or how the property was obtained
- The value of the contribution is deducted as an itemized deduction and thereby reduces taxable income. Keep in mind that itemized deductions may be limited or reduced if adjusted gross income exceeds certain levels.
- Recently, the IRS has targeted the donation of automobiles to charitable organizations as a potential area of abuse. There have been numerous print, radio and television advertisements encouraging people to donate their automobiles and deduct the "blue book value" of the vehicle based on the year and model regardless of the condition of the vehicle. Secondly, many charitable organizations have an arrangement with a "third party" which allows this party to use the charity’s name to solicit contributions of vehicles. These relationships jeopardize the donor’s charitable contribution.
- Automobile donations should be made only if the donee organization will provide a receipt for the contribution. It is advisable to work with reputable charitable organizations such as groups that have a nationally recognized charity associated with them or with deep roots in the community. These types of organizations generally stand a better chance of avoiding scrutiny by the IRS.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.