15 Jan Giving a car to charity

Q. I have a car to donate to charity, however, I keep hearing to be careful. How does one determine a good organization and the value for IRS purposes. I want to maximize giving benefits without getting ripped off or disappointed by the giving process.
— Cautious giver

A. The IRS has specific regulations related to charitable donations, and you’re smart to learn more before giving anything to an organization.

Charities, described in section 501(c)(3) of the Internal Revenue Code, need funds to operate their charitable, educational, or other tax-exempt programs.

These charities may choose from a number of fundraising activities for financial support, and the sale of donated vehicles is a popular one, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said generally, when you donate property to a recognized charity, you can take a tax deduction for the fair market value of the property. This rule is the same regardless of the type of property donated.

“You can donate art, automobiles, boats, stocks or bonds,” Kiely said. “The charity might use the property in the day-to-day operations of their charity. They may also sell the donated property and use the proceeds for their charitable operations.”

In order to take and keep the charitable deduction, you must do two things. First, you must determine if the charity is eligible to receive tax deductible contributions. Second, you must document how you determined the fair market value of the property you donated, Kiely said.

To verify that an organization is a charity qualified to receive tax-deductible contributions, you can use the “EO Select Check” tool on the IRS website. .

You may also verify an organization’s status by calling the IRS Customer Account Services division for Tax Exempt and Government Entities at (877) 829-5500. Be sure to have the charity’s correct name. It is also helpful to know the charity’s address.

Not all qualified organizations are listed in EO Select Check, Kiely said.

“For example, churches, synagogues, temples, and mosques are not required to apply to the IRS for recognition of exemption in order to be qualified organizations and are frequently not listed,” Kiely said. “If you have questions, call Customer Account Services at the above number.”

When you make a donation, you must obtain a written acknowledgment for a vehicle contribution deduction of more than $500. What the written acknowledgment must contain depends upon what the charity does with the vehicle, Kiely said. However, all acknowledgments must contain the following information:

• your name and taxpayer identification number

• the vehicle identification number

• the date of the contribution, and one of the following:
  — a statement that no goods or services were provided by the charity in return for the donation, if that was the case
  — a description and good faith estimate of the value of goods or services, if any, that the charity provided in return for the donation, or
  — a statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case.

Kiely said if the acknowledgment does not contain all required information, the deduction may not exceed $500.

Generally, if the charity sells your vehicle, your deduction is limited to the gross proceeds the charity receives from its sale, Kiely said.

In addition to the information indicated above, the contemporaneous written acknowledgment must contain:

• a statement certifying that the vehicle was sold in an arm’s length transaction between unrelated parties,
• the date the vehicle was sold,
• the gross proceeds received from the sale, and,
• a statement that your deduction may not exceed the gross proceeds from the sale.

If you are claiming at least $250 but not more than $500 as the value of your vehicle, the acknowledgment must include the name of the charity, a description (but not value) of your vehicle, and one of the following:

• a statement that no goods or services were provided by the charity in return for the donation, if that was the case,
• a description and good faith estimate of the value of goods or services, if any, that the charity provided in return for the donation, or,
• a statement that goods or services provided by the charity consisted entirely of intangible religious benefits, if that was the case.

If you are claiming a deduction of $500 or less, Kiely said, you will need to determine your vehicle’s fair market value as of the date of the contribution.

“Generally, fair market value is the price a willing buyer would pay and a willing seller would accept for the vehicle, when neither party is compelled to buy or sell, and both parties have reasonable knowledge of the relevant facts,” he said.

If you use a vehicle pricing guide to determine fair market value, be sure that the sales price listed is for a vehicle that is the same make, model, and year, sold in the same condition, and with the same or substantially similar options or accessories, as your vehicle, he said. Moreover, the fair market value of a vehicle cannot exceed the price listed for a private-party sale.

When you file your tax return, you must attach to your return the written acknowledgment received from the charity if you are deducting more than $500, Kiely said.

” Depending on the amount you are claiming as a charitable contribution deduction, you may need to get and keep certain records and file an additional form or statement to substantiate your charitable contributions,” he said.

Kiely said if the deduction you are claiming for a donated vehicle is greater than $500, but not more than $5,000, you must complete Section A of Form 8283 and attach it to your Form 1040. If the deduction you are claiming is greater than $5,000, you must complete Section B of Form 8283, which must include the signature of an authorized official of the charity, and attach it to your return, he said.

In addition, if the deduction is over $5,000 and not limited to the gross proceeds from the sale of your vehicle, you must get a written appraisal of your vehicle, Kiely said. Your written appraisal must be from a qualified appraiser, and the appraisal must be made no more than 60 days before you donate the vehicle. You must receive the appraisal before the due date (including extensions) of the return on which you first claim a deduction for the vehicle.

“When my clients’ donate property I usually ask them to take photographs of the property,” Kiely said. “When the property is a car, I also recommend the take a picture of the odometer so they can document the auto’s mileage. Once the car is gone, it’s too late to get the proper documentation.”

Also note, Kiely said, he’s heard radio commercials for a kid’s charity that say you will receive a tax deduction receipt and a travel discount voucher for a donation.

“The voucher has value, so the value must be deducted from the value of the car you donate,” he said.

For more information, see Publication 4303 “A Donor’s Guide to Vehicle Donation” and Publication 561 “Determining the Value of Donated Property.”

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This story was first posted in January 2016.