Does giving you car to charity cause a red flag at the IRS?

Answer 1

Well, only to the degree that there is a recent (last year or two) change and the procedure to get a dedcution for doing so now is exacting and needs to be followed. Only qualified charities actually have the ability to provide you all of what you need. If it's done correctly, it isn't a problem. In the case of a contribution of a “qualified vehicle” (defined below), generally an auto, boat, or airplane (other than inventory), the claimed value of which exceeds $500, no deduction is allowed unless the taxpayer (1) substantiates the contribution by a contemporaneous written acknowledgement from the donee organization containing specified information and certification(s) and (2) includes the acknowledgement with the tax return on which the deduction is claimed. For the deduction limit for contributions of qualified vehicles. Code Sec. 170(f)(12)(A)(i) . The content and timing of the acknowledgement depend on whether the donee organization: ... sold the vehicle without significant intervening use or material improvement. ... didn't sell the vehicle before significant intervening use or material improvement, ; or ... sold the vehicle below fair market value (or gratuitously transferred it) to needy individuals in furtherance of the donee's charitable purpose. A donee organization may provide the acknowledgment to a donor in any reasonable manner. Copies B and C of Form 1098-C may be used for this purpose. If the claimed value of the vehicle is at least $250 but not more than $500, the substantiation requirements for charitable contributions of $250 or more apply. A qualified appraisal is generally required for charitable contributions of property valued at more than $5,000. However, qualified vehicles that are sold without significant intervening use or material improvement are exempted from that requirement if the required acknowledgement is provided. Charities often hire third parties to run their vehicle donation programs. IRS has approved a charity's use of a third-party agent to solicit donations of used cars, sell the cars, transfer the sales proceeds to the charity (less the agent's fee), and provide the required written acknowledgement of the donation. Since many charitable donations are made near the end of the year, it may not be possible for a taxpayer to claim a charitable deduction for a donated vehicle on a return filed by the original due date.

Answer 2

Not necessarily, if the vehicle is donated to an organization recognized by the IRS and the donor obtains documentation of the donation there should not be a problem with claiming the deduction. Because of either real or percieved abuse of donations of vehicles being claimed at much more than their actual value, a number of new qualifications have been enacted within the last few years. More documentation from the qualified charity is now required, some only available AFTER they dispose of the donation. Many organizations are poorly equipped to do this and some have started refusing to accept them because of it. Like any tax reporting item, when done properly, there is no particular "red flag". Taxpayers donating to a charity a qualified vehicle (e.g., car, truck, boat, aircraft) valued at over $500 must obtain from the charity and attach to his or her return either a Form 1098-C or a similar contemporaneous written acknowledgement of the contribution. The acknowledgment must identify the donor taxpayer, list the taxpayer's and the vehicle's identification numbers, and include a description and good faith estimate of the value of any goods or services provided by the charity in exchange for the vehicle. If the goods or services consist solely of intangible religious benefits, the acknowledgment must say so. If the charity sells the vehicle without significant intervening use or material improvement, the acknowledgment must also certify that the vehicle was sold in an arm's length transaction between unrelated parties, list the gross proceeds, and state that the deduction may not exceed the gross proceeds. If the charity retains the vehicle for its significant use or makes a material improvement, the acknowledgment must certify the use or improvement, the time frame the charity will use the vehicle, and that the vehicle will not be transferred before the use or improvement is completed. The taxpayer will then be allowed to claim the fair market value of the vehicle as a charitable donation ( Code Sec. 170(f)(12)). If the charity sells the vehicle for a significantly low fair market value (or gratuitously transfers the vehicle) to a needy individual, the taxpayer can claim the vehicle's fair market value only if the sale or transfer directly furthers the charity's purpose However, if a charity sells the vehicle at auction, the IRS will not accept as substantiation an acknowledgment stating that the vehicle is to be transferred to a needy individual for significantly below fair market value. In that case, the donor taxpayer may claim a deduction greater than $500, but only to the extent that the gross sale proceeds exceed that amount and the donor substantiates the contribution with an acknowledgment listing the gross proceeds.