Boat on a trailer by the sea, Pag island
Sometimes charitably-inclined individuals will consider donating their antique automobile collection, a boat or even a private plane to charity. The tax rules for donations of non-cash assets are generally favorable and can result in a large tax savings for some donors. However, the rules for these types of donations are a bit complex.
The American Jobs Creation Act of 2004 limited taxpayers’ deductions for donated cars, boats or planes that have a value greater than $500. Before this legislation, taxpayers could deduct the published fair market value for the car, boat, or plane. This policy was clearly vulnerable to abuse by taxpayers and gave rise to the Blue Book Scam. It went something like this: Donor has a non-working, rusted out 1974 Chevy with two working wheels in a farm field. A valuation guide says it is worth $3,200 so they donate it to charity and claim that full value deduction. Then the charity would outsource the donation to a scrap dealer and was lucky to get a check for $100 when all is said and done. Today, under the Act, taxpayers’ deductions are determined by the amount that the vehicle sale is eventually received by the charity.
In analyzing how to take the deduction amount for a donated vehicle, taxpayers will have to first determine whether the charity disposed of the car like any other seller, or for a charitable purpose. If the charity merely sells the car at an auction,…
