Yesterday we talked about donating a motor vehicle (car, truck, motorcycle, boat, airplane) to charity and discussed three different ways the charity can use your donation.
In the first situation, the charity sells the vehicle to raise money. Here the Form 1098-C you receive will include the gross proceeds from the sale of the vehicle. Your tax deduction is limited to the sale price. If the charity sold your car for $4,200 you can deduct $4,200.
In the other two situations the charity will either use the vehicle in furtherance of its charitable purpose or will make “material” improvements to the vehicle before selling it. In either situation you can deduct the "fair market value" of the vehicle. You can use the "private party value," adjusted for mileage and condition, listed at Kelley Blue Book or a similar established guide. The charity will generally not tell you the fair market value of the vehicle.
To recap: in situation one the charity will tell you what you can deduct. In situations two and three you determine the amount of the deduction, subject to audit by the IRS.
If you are claiming a deduction of more than $500 you must complete IRS Form 8283 as part of your 1040 filing and attach Copy B of the Form 1098-C.
If you are deducting the market value of the vehicle, and this is more than $5,000, you must obtain a formal appraisal, a copy of which must be attached to Form 8283.
New Jersey tax pro Robert D. Flach has been preparing 1040s for individuals since 1972.