Donating an automobile with a fair market value of more than $500 has a few twists and turns when taxpayers claim a deduction.
Taxpayers donating to charity a qualified vehicle, car, truck, boat or aircraft valued at over $500 must obtain from the charity either a Form 1098-C or a similar contemporaneous written acknowledgment of the contribution. They should attach this documentation to their return.

The acknowledgment must provide the following information:

➜ Donor’s name
➜ Donor’s Social Security number
➜ Vehicle’s identification number
➜ Description of each donated item
➜ Good-faith estimate of any goods or services provided by the charity in exchange for the vehicle

The fair market value of any goods or services received by the donor reduces the amount of the charitable contribution deduction.

The acknowledgment also must contain the amount of sales proceeds if the vehicle was sold in an arm’s-length transaction. For a vehicle sold in an arm’s-length transaction with no material improvements, the amount of the donation is limited to the amount of the sales proceeds.

If the charity retains the vehicle for its own internal purposes, the acknowledgment must state that as well. Under those conditions, the taxpayer can deduct the fair market value of the vehicle.

If the charity sells the vehicle to a needy individual at a price below fair market value, the taxpayer is allowed to claim the fair market value as the deduction amount, provided the sale furthers the charity’s purpose. Most of these types of charities have as their purpose helping needy individuals by providing them with good-quality, low-cost automobiles.

When itemizing deductions, taxpayers should deduct charitable contributions on Schedule A and attach it to their Form 1040 tax return. In addition, they should remember to attach a copy of their 1098-C or similar acknowledgment.

©2015 CPAmerica International