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Congress has imposed tough rules that substantially limit the deduction for this charitable donation.
It is common practice for charities to immediately resell the donated vehicles to a wholesaler at substantially reduced prices, generally far less than the FMV one might consider as the listed bluebook FMV of the vehicle. As a result and to keep taxpayers from deducting more than the charity benefited from donation, if the deduction exceeds $500, the deduction will be limited to the gross proceeds from the charity's sale of the vehicle.
Example: A taxpayer donates a car with a FMV of $2,000 to a charity. The charity immediately sells the car to a wholesaler for $900. The taxpayer would only be able to deduct the gross proceeds from the charity's sale. This limits the taxpayer's charitable contribution deduction to $900.
In addition, a written acknowledgement from the charity is required and must contain the name of the donor, donor's tax ID number and the vehicle identification number (or similar number) of the vehicle. The IRS has developed new Form 1098-C that incorporates all of the required acknowledgement elements for the donee (charitable organization) to complete. The donor is required to attach copy B of the 1098-C to his or her federal tax return when claiming a deduction for contribution of a motor vehicle, boat or airplane.
There is an exception to these rules for donated vehicles which the charity retains for their own use "to substantially further the organization's regularly conducted activities" or sells it at a price significantly below FMV (or gives it away) to a needy individual in direct furtherance of the charitable purpose of a donee of relieving the poor and distressed or the underprivileged who are in need of a means of transportation. Please call this office for more information.
While the tax or legal information provided is based on our understanding of current laws, and has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice and should only be relied upon when coordinated with individual professional advice. Neither FSC Securities Corporation, nor its registered representatives, provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your own tax or legal counsel for advice.