The American Jobs Creation Act of 2004 made significant changes in the allowable charitable deduction for donated vehicles (automobiles, trucks, buses, motorcycles, recreational vehicles, boats and airplanes) when the claimed deduction exceeds $500. With certain limited exceptions, charitable deductions for vehicle donations after January 1, 2005 are limited to what the charity receives from the sale of the vehicle.
Acknowledgment of the Gift
The department receiving the gift is responsible for providing the donor with an acknowledgment letter thanking them for the gift. If the value of the donated vehicle is greater than $500, the letter must also include the items 1 – 4 below. Alternatively, a copy of IRS Form 1098-C (discussed below) may be attached to the acknowledgment letter.
In addition to providing the donor with IRS Form 8283 (for non-cash donations) to the donor, the university must file IRS Form 1098-C. If the university fails to file this form with the IRS, it is possible the donor’s charitable deduction claim would be disallowed.
In order to file Form 1098-C, the following information must be provided to the Tax Department:
- Name, address and social security number if the donation is by a person, or employer identification number if the donation is from a business or other entity.
- Date of contribution.
- Make, model and year of vehicle.
- Vehicle or other identification number (hull number for boats, aircraft number for airplanes).
In addition to the information above, the Tax Department must be informed of the university’s intention for the donated vehicle. More specifically, does the university intend to (1) make repairs or improve the vehicle, (2) retain the vehicle for university use, (3) sell the vehicle for market value, or (4) sell the vehicle below market value?
If the vehicle is to be sold, the Tax Department must be notified of the sales price. The sale price will be the amount of charitable contribution deduction allowed to the donor. If the vehicle is to be sold to a non-needy individual, the sale must be to an unrelated party in an arms-length transaction. The university is required to certify sale is unrelated and arms-length.
If the vehicle is to be retained by the university or sold at a reduced price to a needy individual, the donor’s deduction is generally appraised value. The donor is responsible for obtaining an appraisal of the vehicle’s market value. The university is required to certify to the IRS that it will retain the vehicle or transfer it to a needy individual for significantly below fair market value in furtherance of the university’s charitable purposes.