Itemized Deductions from A to Z, Part 9: Motorized Donations

This is part nine in our series on Itemized Deductions. To read the rest of the series, click here. For additional information regarding 2014 tax planning, you can download our 2014 Tax Planning Guide from the Resources tab on our website.

Donating a car, boat or airplane can be complicated, depending upon the value and if the charity uses your donation or sells it. Several years ago, the rules were revised to guard against perceived abuses. Now, you must obtain a written acknowledgement from the charity for any motorized donation for which you claim a deduction of over $500. There are additional rules depending upon how the charity disposes of the vehicle. If the charity sells the vehicle to someone—other than a needy individual—your deduction is limited to the sale proceeds. The charity can decide to keep the vehicle and improve it or use it for their charitable purposes, and in this case your deduction is fair market value. The charity is required to provide Form 1098-C certifying their intent within 30 days of the gift.
Get professional tax help, or research the substantiation requirements before you donate a vehicle. Make certain the charity is willing to supply the proper documentation (and is capable of doing this), or, if examined, you risk losing the deduction.

Planning Tip
If you have a well-used vehicle with very little value, donation is an easy way to dispose of it. However, for a vehicle with substantial value, you might consider selling it yourself (try CarMax) and donating the proceeds to charity—donating cash assures your deduction and sidesteps the documentation issues.

In the next post, we’ll look at charitable limitations and carryovers.