Used Vehicle Donation Rules

There are strict rules for charitable contributions of used motor vehicles, boats, and airplanes that apply to donations valued at over $500. If these rules are not met, a taxpayer cannot claim a charitable deduction. This article explains how the rules work and how taxpayers can verify their donation of a used vehicle, boat, or plane.

The allowable deduction depends on how the donated asset is used by the charity. If the organization sells the asset without using it significantly for charitable purposes and/or making meaningful improvements, the taxpayer’s deduction is generally limited to the gross proceeds from the sale. So, when this general limitation rule applies, the fair market value (FMV) of the donated asset is irrelevant, even if it exceeds the sales proceeds.

However, there are two exceptions to the sales-proceeds limitation rule. The first occurs when the charity sells or gives the taxpayer’s donated vehicle to a needy individual for less than FMV in furtherance of the organization’s charitable purpose. The second exception is available when the charity keeps the taxpayer’s donated vehicle and uses it significantly for charitable purposes or makes meaningful improvements before ultimately selling it. When one of these exceptions applies, the taxpayer generally can deduct the full FMV of the vehicle as of the contribution date.

The tax law includes requirements for charities to substantiate—via written acknowledgments supplied to donors—all manner of things related to contributions of used motor vehicles, boats, and planes. Most charities will comply by issuing the taxpayer a copy of IRS Form 1098-C (Contributions of Motor Vehicles, Boats, and Airplanes). If so, this form contains the all-important gross sale proceeds amount, which usually equals the amount the taxpayer can deduct. The charity must also indicate if one of the two exceptions explained above applies (which means you may be entitled to a larger deduction) and add information substantiating the exception. The taxpayer cannot claim a deduction above $500 unless the charity supplies him or her with Form 1098-C.