Restrictions on the Type of Vehicle That Can be Donated
The federal government allows a tax deduction for the value of vehicles you donate to a qualified charitable organization during the tax year. The rules authorizing deductible vehicle donations are riddled with limitations and restrictions. Taxpayers must ensure that the type of vehicle donated meets all requirements to prevent the Internal Revenue Service from disallowing the deduction.
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Qualified Vehicles
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The federal tax law allows you to claim a charitable deduction when you donate a qualified vehicle to an IRS approved charitable organization. Qualified vehicles include any car or motor vehicle that is manufactured primarily for use on public streets, roads, and highways. The donation of boats and aircraft are eligible for a qualified vehicle deduction. The donation of a dirt bike or off-road vehicle is not deductible as a qualified vehicle; however, a deduction other than charitable contributions may be available, but subject to separate guidelines.
Minimum Value
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The IRS does not require that property you donate have a minimum value to be deductible. However, you cannot take a deduction for a vehicle donation unless it has some value. A vehicle has value if a willing buyer with full knowledge of the vehicles condition would make an offer to purchase it. Whether you are able to obtain $1 or $1 million is irrelevant. If there is no demand for the specific vehicle, its value is zero and ineligible for a charitable contribution deduction.
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Fractional Interests
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The Internal Revenue Code requires you to be the rightful owner of any vehicle you donate. Therefore, vehicles for which you are a joint owner or for which a bank has a legal claim because of an outstanding loan balance, are not eligible for a donation deduction. However, if the charity agrees to assume the outstanding liability on the loan, you can take the deduction provided you reduce the deductible amount by the balance you are no longer liable for.
Exclusive Use
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You must transfer an ownership interest in the car to the charity to claim a deduction. The IRS does not allow you to claim a deduction for granting an exclusive license to the charity to use the car. For example, if you own a limousine and grant the charity exclusive rights to use the limousine every Saturday and Sunday during the tax year, you are prohibited from taking a deduction for the rental value of the limousine for 52 weekends. As an alternative, you can provide the charity with a partial ownership interest in the limousine rather than an exclusive license, and deduct the value of the interest you transfer. The deduction amount does not take into account the amount of use by the respective owners.
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