Many §501(c)(3) charities have already instituted vehicle donations programs to aid in their fundraising efforts. Under Internal Revenue Service rules, a “vehicle” includes “motor vehicles manufactured primarily for use on public streets, roads, and highways; a boat; or an airplane.” Read on to learn if a vehicle donation program might be right for your group.
Properly operated, such a program can benefit both the charity and the donors, not to mention the obvious environmental benefits from removing old and/or inoperable vehicles which may be leaking oil or fuel. But, if the program is not operated according to Internal Revenue Service rules and state laws, negative consequences may occur to both the charity and the donor.
Four ways to accept vehicle donations
Generally there are four types of vehicle donation programs:
1. The charity may use the vehicle itself if it is operable or may give the donated vehicle to one of its intended beneficiaries
2. The charity may sell the vehicle and use the money to support its programs.
3. The charity may engage the services of a for-profit company under a written contract to act as its agent to sell the vehicles. (Shop around to get the best deal!)
4. The charity may allow a for-profit company to advertise for donations of used vehicles, with no written agreement, for which the for-profit company pays the charity a percentage of the sales price. Or, in a slight variant of the fourth program, a for-profit company may simply advertise that it will accept vehicle donations that will be tax deductible contributions to a charity.
This last variant simply misleads the donors. Under IRS regulations, the first three programs will allow the donor to deduct the value of the donated vehicle and the charity will maintain its §501(c)(3) status. There are some obvious fairness limitations, such as selling the donated vehicle at a favorable price to a board member of the charity, or paying the sales agent an exorbitant fee to sell the car.
If the charity stays within general business ethics, however, the charity and the donor will both receive the expected benefits—cash for the charity and a tax deduction for the donor. It is important that the charity give the donor a written or electronic acknowledgement of receipt of the vehicle if it worth more than $250. There are no negative consequences to the charity for failing to acknowledge receipt but the donor will not be able to deduct the donation from his/her taxes thus a charity should have a written receipt procedure in place.
Vehicles donated under the fourth program, however, are not considered charitable donations because there is no “agency” relationship between the for-profit company that receives the vehicles and the charity because there is no written contract between them. In other words, a charity is not allowed to let a for-profit company simply use its tax-exempt status unless the charity establishes an agency relationship with the for-profit vehicle sale company that will be recognized under the law of the state where the donations take place. If there is no recognized agency relationship, the donor cannot deduct the value of the donation and the charity may lose its non-profit status.
Forms to file for a vehicle donation
When a donor gives a vehicle to a charity, the donor must file a Form 8283, “Noncash Charitable Contributions,” if the total of the donor’s contributions for that tax year exceed $500. The charity must also sign the donor’s Form 8283. For donations valued at more than $5,000, the donor must also get an appraisal from a qualified appraiser. The appraiser will also sign Section B of Form 8283. The donor must give the charity a copy of Section B.
The charity that received the donated vehicle must file a Form 8282, “Donee Information Return,” if it sells the vehicle within two years after it received the vehicle. Form 8282 must be filed within 125 days after the vehicle was sold. Form 8282 identifies the donor, states that the vehicle was sold in an “arm’s length” transaction and the date of the sale, and states the amount of money the charity received for the vehicle. The charity has to give a copy of Form 8282 to the donor.
There is one last consideration for the charity when it adopts a program of accepting vehicle donations: title to the vehicle. The charity must follow the law of the state where the donation is made. Usually the charity can request that title to the vehicle be transferred into the charity’s name. Some states allow the sales agent to hold an “open title” or the sales agent can put its own name on the title. Charities should remove the license plates unless state law requires otherwise.
For your state’s titling requirements visit your State Charity Official’s website nasconet.org. The Internal Revenue Service can also help. Its services, and the Forms mentioned above, are available online at IRS.gov.
From the donor’s perspective
– Donors can only deduct charitable contributions to a 501(c)(3) if they itemize their deductions on Schedule A of Form 1040 (their tax return).
– The donor’s charitable deduction cannot exceed 50% of his/her adjusted gross income.
– Generally the deduction will be the same amount as the the amount the charity sold the vehicle for, but there are exceptions. Donors may be able to deduct the fair market value of the vehicle on the date of donation if the charity uses the vehicle for a period of time before selling it, if the charity makes a significant improvement to the vehicle before selling it, or if the charity simply gives the donated vehicle or sells it at a reduced price to a needy person in furtherance of the charity’s purpose of relieving poverty.
– Donor should sign over the registration to the charity him or herself to make sure they’re relieved of any liability for the car or responsibility for fees.
– If the vehicle was sold for $500 or less, the donor may deduct the lesser of the vehicle’s fair market value on the date of the donation or $500.
– Donors must attach a copy of the charity’s acknowledgement of receipt to their tax returns if they are deducting more than $500.
– Donors may ask to see any agreement you have with a for-profit company that sells your car on your behalf. Be prepared to show it.
– Donors can look up your tax-filings at guidestar.org
Note: This article is not meant to be legal advice. Please consult a legal professional for more details and the most current laws about vehicle donations.
Image © Marita Braun