Cars, Homes & Tax Deductions

The economic drought has stunted many nonprofits’ ability to serve their communities – just when their services are most needed.  As traditional donation streams dry up, charities are reeling to uncover new revenue springs.  One example of a creative, business-like solution has been Habitat for Humanity’s Cars for Homes Program.  This program allows for the donation of virtually any vehicle – running or not – to help families obtain affordable homes and shelter.  The Cars for Homes Program combines charitable giving with an extraordinary level of customer service.  Want to rid the driveway of the unused vehicle you must still pay insurance for (or – as in my case - the “oil-dripping eyesore” the Misses wants gone)?  Want to help your local Habitat for Humanity organization, and get a potential tax deduction?  It’s as easy as making a phone call or visiting a website.

How does it work? Habitat for Humanity has teamed up with a company named Advanced Remarketing Services, Inc (ARS) to collect, process and properly report all donated vehicles to the IRS and the Donor.  Vehicle donations (which can include boats, RVs, airplanes – even farm and construction equipment) are made by calling (877) 277-4344 or by visiting http://CarDonationWizard.com.  Once the vehicle’s title is received an ARS representative will be out to pick up the vehicle on behalf of Habitat for Humanity. 

Does the Condition of the Vehicle Matter?  Habitat for Humanity will accept most vehicles as long as they have four inflated tires, are in one piece, and the vehicle’s value exceeds the cost of towing and transport.

How Much Can I Deduct on My Taxes?  Be aware: The tax rules regarding vehicle deductions changed a few years ago but can still result in a tax deduction for those who itemize deduction on schedule A.  Prior to 2005, taxpayers could simply claim the vehicle’s fair market value (FMV) obtained from a reference guide such as Kelley Blue Book.  Since 2005, however, the rules have become more strict and complex.  The deduction amount allowed (if over $500) depends on how the organization uses the vehicle.  The charity reports this use to both donor and the IRS via Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes. 

How the Vehicle Deduction is Calculated

Outright sale by charity: If the vehicle is sold by the charity to a disinterested third party, the deduction is limited to the proceeds from the sale.  The charity reports this amount on Box 4c of Form 1098-C. 

Improvements prior to sale:  If the charity makes significant improvements to the vehicle (repairs that substantially increase the vehicle’s value), the donor will be able to deduct the vehicle’s FMV as of the date the contribution was made.  The charity notifies the donor and IRS of these improvements by checking Box 5A and describing the improvements in Box 5C on Form 1098-C.

Sale or transfer to needy individual: If the charity sells or gives the vehicle to a needy individual the donor will be able to deduct the vehicle’s FMV as of the date the contribution was made.  This is true even if the charity sells the vehicle for less than its FMV.  The charity notifies the donor and IRS of these improvements by checking Box 5B on Form 1098-C.
Significant use by charity:  If the charity retains the vehicle for use in its charitable purpose, the donor can deduct the vehicle’s FMV as of the date the contribution was made.  The charity notifies the donor and IRS by checking Box 5A and describing the vehicle’s use in Box 5C on Form 1098-C.

These reporting requirements apply when the vehicle’s “claimed” FMV exceeds $500.  If Form 1098-C is not received, the donor cannot deduct more than $500 for the vehicle.  If the donor is allowed to deduct the vehicle’s FMV they must be able to substantiate the deduction claimed.  Donors are not entitled to deduct the value listed in any valuation guide unless they can prove the vehicle’s condition warrants the claimed value. 

This article shares Habitat for Humanity’s Cars for Home’s Programs and information on deducting donated vehicles (including boats and airplanes) to charity.  There remain, however, many additional tax limitations.  As always, please remember that this or any article does not constitute or replace the advice of a qualified professional.  If you have any questions regarding your charitable giving or any other tax issue, please feel free to call our office at (304) 267-2594.

Brett Hersh's avatar
  • Author: Brett Hersh
  • Bio: Brett Hersh, EA, MBA, is the owner of HBS TAX & Small Business Experts. He is an Enrolled Agent (EA) with the IRS and licensed by the US Treasury Department to prepare all tax returns and represent taxpayers before the IRS for audits, collections and appeals. He is also Dave Ramsey’s ELP for Tax and Accounting, a continuing education instructor for tax professionals through Lorman Education, and a local speaker/presenter on the topics of tax and business growth. He can be reached at (304) 267-2594.