IRS Regulations

logo_irs_eagleIf you follow the established IRS rules when you donate a car to a charity you should be able to receive a healthy deduction.

The IRS has revised the rules for taking a deduction for those who donate a car or other vehicle to charity. Car and other vehicle donations to charities have become quite popular in the last few years, and the IRS decided that they should clarify the process of deducting of the value of donations.

IRS Regulations regarding tax deductability of Car Donations

If you donate a car to a qualified organization after December 31, 2004, your deduction is limited to the gross proceeds from its sale by the organization. This rule applies if the claimed value of the donated vehicle is more than $500. However, if the organization makes significant intervening use of or materially improves the car, you generally can deduct its fair market value.

Boats, aircraft, and other vehicles.

These rules also apply to donations of recreational vehicles, campers, boats, aircraft, and any vehicle manufactured mainly for use on public streets, roads, and highways.

Acknowledgement required.

If the claimed value of the car is more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return. If you do not have an acknowledgement, you cannot deduct your contribution.

The acknowledgement must include the following information.

  • Your name and taxpayer identification number.
  • The vehicle identification number or similar number.
  • A statement certifying the car was sold in an arm’s length transaction between unrelated parties.
  • The gross proceeds from the sale.
  • A statement that your deduction may not be more than the gross proceeds from the sale.
  • The date of the contribution.

However, if there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the information in items 3, 4, and 5 above. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement.

This acknowledgement must be provided within 30 days of the sale of the car or, if there is significant intervening use or material improvement of the car by the charity, within 30 days of the date you donated the vehicle.

The organization or charity also must provide this information to the IRS.

Donations of inventory.

These rules do not apply to donations of retail inventory. For example, these rules do not apply if you are a car dealer who donates a car from your inventory of cars for sale to the public.

More information.

The IRS expects to issue more guidance on these rules early in 2005.
Be Cautious and Be Informed
If you donate a car to charity, you can’t be sure of the amount of the deduction until the charity actually sells the vehicle and reports the sale price to you. Also, since charities often sell vehicles at auctions, the selling price could be much lower than the fair market value. So be prepared, you may not get the velue you expect.
New IRS Publication
The IRS has issued new guidance for those individuals wanting to donate their car to charity. It is Publication 4303, “A DonorĀ“s Guide to Car Donation“.


IRS Current Tax Regulations

Tax Year 2005

Charitable Contributions of Vehicles, Boats, and Aircraft
If you donate a vehicle (including a boat or aircraft) to a qualified organization after December 31, 2004, your deduction is limited to the gross proceeds from its sale by the organization. This rule applies if the claimed value of the donated vehicle is more than $500. However, you generally can deduct its fair market value if the organization:

  • Makes significant intervening use of the vehicle,
  • Materially improves the vehicle, or
  • Transfers the vehicle to a needy individual in direct furtherance of the donee’s charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation.

Boats, aircraft, and other vehicles.
These rules apply to donations of boats, aircraft, and any vehicle manufactured mainly for use on public streets, roads, and highways.

Acknowledgement required.
If the claimed value of the car is more than $500, you must have a written acknowledgement of your donation from the organization and must attach it to your return. If you do not have an acknowledgement, you cannot deduct your contribution.

The acknowledgement must include the following information.

    • Your name and taxpayer identification number.
    • The vehicle identification number or similar number.
    • A statement certifying the car was sold in an arm’s length transaction between unrelated parties.
    • The gross proceeds from the sale.
    • A statement that your deduction may not be more than the gross proceeds from the sale.
    • The date of the contribution.

However, if there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the information in items 3, 4, and 5 above. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement.

This acknowledgement must be provided within 30 days of the sale of the car or, if there is significant intervening use or material improvement of the car by the organization, within 30 days of the contribution.

The organization also must provide this information to the IRS.

Donations of inventory.
These rules do not apply to donations of inventory. For example, these rules do not apply if you are a car dealer who donates a car you had been holding for sale to customers.

More information.
More information can be found in Notice 2005-44 and the 2005 revision of Publication 526, Charitable Contributions (to be available mid-December 2005).