Charitable Deduction Rules

Large charitable gifts require extra detail on your tax return. When a contribution of property is between $500 and $5,000, details must be provided about the gifts on Section A of Form 8283. When the value exceeds $5,000, a qualified appraisal must be included. Complete details about the reporting requirements are in IRS Publication 561 Determining The Value Of Donated Property and Publication 526 Charitable Contributions available on the IRS web site or by calling 800-TAX-FORM. For some free information about charitable giving strategies generally, check the web sites www.pgresources.com or www.nolo.com.

There are special rules for donations of cars, boats, or plans under rules Congress wrote in 2004.

The rule for donations of these items after Dec. 31, 2004, is that the donor can deduct only the actual sale price the charity receives when it sells the property, if the claimed deduction exceeds $500.

The taxpayer must include with his tax return a contemporaneous written acknowledgement of the gift from the charity, containing the name and taxpayer identification number of the donor, the vehicle ID number, the date of the contribution, the date that the vehicle was sold by the charity, and the gross proceeds from the sale. The statement also must include a certification that the vehicle was sold in an arms’ length transaction between unrelated parties, and a statement that the deduction may not exceed the gross sale proceeds. The written statement should be issued to the taxpayer within 30 days of the sale.

The deduction cannot be taken until the charity makes the sale and issues the statement. The donor won’t know for certain the amount of the deduction, or if one is available, for weeks or months.

If the sale of the vehicle yields $500 or less, the donor deducts the lesser of the fair market value on the date of the contribution and $500. If the fair market value is $250 or more, a written acknowledgement of the donation from the charity still is required.

If the claimed deduction is not limited to the sale proceeds and exceeds $5,000, then a qualified appraisal is required.

There are several exceptions to these rules. There are exceptions when the charity makes a significant intervening use of the vehicle, when the charity makes a material improvement, and when the charity sells the vehicle for less than fair market value in a gratuitous transfer to a needy person. IRS regulations provide details about qualifying for each of these exceptions. When an exception is claimed, a written acknowledgement from the charity of the exception is required. In addition, the value of the vehicle at the time of the donation must be established. A published used vehicle pricing guide can be used, but the donated car must be in the same condition and have the same features as the vehicle listed in the guide.