14.7 Cars, Clothing, and Other Property Valued Below Cost

If you donate property whose value has declined below your cost, your deduction generally is limited to the fair market value. However, the rules for cars, trucks, boats, and airplanes are more complicated. Strict substantiation requirements apply to prevent donors from claiming inflated deductions for donated vehicles where the charity actually received much less on a sale to raise cash; see below.

If you are planning a donation of stock or other investment or business property worth less than your basis (5.20), consider selling the property and then donating the proceeds. If you donate the property, your deduction is limited to the fair market value and you cannot deduct a loss. If you first sell the property, you can claim a loss on the sale and then claim a charitable contribution on your donation of the sale proceeds; see the Example below.

Clothing or household items.

You can claim a deduction for used clothing or household items only if they are in good used condition or better. Household items include furniture or furnishings, linens, appliances or electronics, but not antiques, art, collections, or jewelry. Your deduction for “good condition” clothing or household items is limited to their fair market value, which is usually much less than your orginal cost. Prices paid in thrift shops for similar items are an indication of fair market value. If you have photographs of the donated items, or a statement describing them from the charity, this would help support your valuation should the IRS later question your deduction. If an item is valued at over $500 in a qualified appraisal that you attach to your return, a deduction is allowed even if the item is not in good used condition or better.

Cars, other motor vehicles, boats, and airplanes.

You must obtain a timely written acknowledgment from the charity to substantiate a deduction for a car or other motor vehicle, boat, or airplane with a claimed value of over $500. The required acknowledgment must be on Form 1098-C or an equivalent statement from the charity. Copy B of the Form 1098-C (or equivalent acknowledgment) must be attached to your return; if you do not attach the form to your return, the IRS will disallow your deduction. If you e-file your return, you must attach Copy B of Form 1098-C to Form 8453 and mail the forms to the IRS. You also must attach Form 8283 if your total deduction for all property donations exceeds $500 (14.15). Vehicles held primarily for sale, such as dealer inventory, are not subject to the acknowledgment rules or the deduction restrictions in the following paragraphs (14.12).

If the charity sells the vehicle for more than $500 to a buyer other than a needy individual (see below) without having put it to a significant intervening use, or without materially improving it, your deduction is limited to the gross sales proceeds. You must be sent the Form 1098-C (or equivalent substitute) within 30 days of the sale. The charity must certify in Box 4a that the sale was made in an arm’s-length transaction to an unrelated party. The amount of the gross proceeds (not reduced by expenses or fees) will be shown in Box 4c.

If the charity intends to significantly use the vehicle in furtherance of its regularly conducted activities or to materially improve it before selling it, Form 1098-C (or other acknowledgment) must be provided to you within 30 days of the donation. In Box 5a, the charity must certify its intent and in Box 5c it must certify a detailed description of the planned use or improvement, including the intended duration of such use or improvement. If Box 5a is checked, you may take a deduction equal to the fair market value of the vehicle on the date of contribution.

Fair market value is also deductible if the charity checks Box 5b to certify that the donated vehicle will be given to a needy individual, or sold to such to an individual for significantly less than fair market value, in furtherance of the organization’s charitable purpose. You must be given Form 1098-C (or equivalent acknowledgment) with Box 5b checked within 30 days of the donation.

Copy B of Form 1098-C states that the deduction may not exceed the gross sales proceeds unless Box 5a or 5b is checked. If fair market value is deductible because Box 5a or 5b is checked, value may be based on an established used-vehicle-pricing guide, provided the amount is for a comparable model in similar condition and sold in the same area.

In Boxes 6a–6c of Form 1098-C, the charity indicates whether any goods or services were provided to the donor and, if so, they are described and a good faith estimate of their fair market value is shown. The deduction must be reduced by the value of the goods/services provided, with one exception. If the only benefits provided to the donor are intangible religious benefits (such as admission to a religious ceremony), Box 6c will be checked and the deduction does not have to be reduced by such benefits.

If the claimed value of the vehicle is at least $250 but not over $500.

If the claimed value of a car, other motor vehicle, boat, or airplane (but not dealer property) is at least $250 but not over $500, the contribution is not acknowledged on Form 1098-C (or equivalent), but you must obtain a written acknowledgment meeting the general substantiation rules (14.14) by the due date for filing.

If the charity sells the donated vehicle (other than a sale to a needy person in furtherance of charitable purposes) without a significant intervening use or material improvement, and the gross sale proceeds are $500 or less, IRS guidelines allow a deduction to be claimed for fair market value if that exceeds the proceeds, but no more than $500 can be deducted. For example, if the gross sale proceeds are $400 but the donor can substantiate a fair market value of $450, a deduction of $450 would be allowed, provided a qualified acknowledgment (14.14) is obtained. If the donor could substantiate a fair market value exceeding $500, the deduction would be limited to $500.