Are you considering donating your vehicle to a charity in 2007? Have you already donated a vehicle in 2006? Then here’s a list of tax tips for you that deal with such donations.
Tax Tip 1: Be sure that you are donating to a qualified charity. Check out the annual list of such charities at IRS – Search for Charities.
Tax Tip 2: Be sure to understand the amount that you can deduct with your itemized deduction on Schedule A.
If the Fair Market Value (FMV) of the vehicle is $500 or less, you can deduct that amount as your deduction. See Tip 4 for determining your FMV.
If the value of the contribution is more than $500, here are the details.
Generally the amount that you deduct for donating the vehicle depends on what the charity does with the vehicle. Typically charities sell the donated vehicle. If this happens to your vehicle, you’ll receive a written acknowledgment from the charity stating the amount that they received from the sale. That’s the amount that you can deduct on your Schedule A.
There are a couple of exceptions to the above rule.
If the charity “intends to make a significant intervening use” of the vehicle, you can deduct the fair market value of the car on the date of the donation. You can also deduction the FMV if the charity intends to give or sell the vehicle to a needy individual.
Tax Tip 3: Be sure you receive the right acknowledgement from the charity.
For any vehicle donation, you need to receive paperwork with the charity’s name, date of donation, description of the vehicle, and any goods/services that were provided in return for the donation.
If the vehicle’s FMV is greater than $500, the paperwork needs to also have your name and the vehicle’s identification number (VIN).
If your vehicle was sold, in addition to the information above, you need to receive a certification that it was sold in an arm’s length transaction, date it was sold, and gross proceeds received from the sale.
If the charity intends to use the vehicle, you’ll also need statement certifying the intended use and duration of that use of the vehicle.
Tax Tip 4: Be sure you determine the right FMV of your vehicle.
If the FMV of your vehicle is $500 or less you’ll need to determine its value. It’s the same for a donated vehicle that the charity intends to use. You can figure out value with the typical vehicle pricing guides but beware that the deductible value can’t exceed the price listed for a private-party sale. It’s not based on the retailer resale value. For more information, see IRS’ Publication 561.
Tax Tip 5: Be sure you know what to attach to your return.
If your vehicle deduction is more than $500 and donated in 2006, you must attach the charity’s written acknowledgment. If your donation is in 2007, you’ll receive a Form 1098-C that will need to be attached to your 2007 tax return. See Form 1098-C.
To find out more details on all of these tax tips, check out the IRS’ brochure Donor’s Guide to Vehicle Donations .