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Chart 1 shows the tax benefits that businesses can typically receive from charitable donations, and the corresponding deduction limits. Chart 2 shows how different types of business charitable contributions are treated. Vehicles donated by businesses can be treated in one of two ways. If you have questions, be sure to consult a professional tax advisor.
Chart 1
Note 1: This information is based on contributions to 501(c)3 corporations. Contributions to foundations and some organizations with different IRS tax designations offer different tax benefits. Note 2: If a business other than a C Corporation has more than one owner, the business's deductions are distributed evenly among the partners. Types of Business Charitable
Contributions Depending on the circumstances, donated vehicles may be treated one of the following two types of contributions shown in Chart 2 below:
Chart 2
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Contributing Appreciated Inventory
Inventory donations by C corporations to benefit the ill, needy or infants can be eligible for charitable deductions that exceed what the corporation paid for the property, if there is value added by the corporation. Specifically, property bought for inventory, i.e., items ordinarily sold to customers, can be deducted to the extent of the business's basis (or cost) in it, plus up to 50% of its "unrealized appreciation," which is the amount it would be worth if it were used for business rather than charitable purposes.
For example, Mike's Bistro buys $300 worth of hamburger, cheese and buns.
Mike could turn that inventory into cheeseburgers and sell them for $700, but he
agrees to cook the food into meals for the local homeless shelter.
Mike can now claim a charitable deduction for the $300 worth of food plus 50% of
the additional $400 that the restaurant would have made from selling the meals.
This means the business gets a $500 charitable deduction from a $300 food
purchase.
The key here is that Mike's business not only purchased the foods, but also
turned them into completed meals, or "value-added" property, worth more at
resale than what was originally paid.
Write-off Limits
This donation deduction is available to corporations, but cannot be taken by an
S corporation, a personal holding company or a service organization.
In addition, the deduction taken cannot exceed twice the basis in the property.
For example, the claimed deduction for Mike's $300 of inventory is limited to
$600, or twice the basis of $300. This is true even if the finished
product could have been sold for more than $900.
The contribution also has to go to an approved charitable use, as well as an
approved institution. In other words, the qualified charity receiving the
donation must use it for something related to the care of infants, the ill or
the needy. (The charity should provide the donor with a document
specifying the use of the donation.) The above example contribution to the
soup kitchen qualifies, but a museum fund-raiser to purchase works of art for
the institution does not qualify.
DONATE YOUR VEHICLE
Tax
Deductible
Call
(256)
551-1610
Find
out if the charity actually plans to give the car to someone in need, or
otherwise how much the charity actually benefits financially from the car.
Make sure the title of the car is transferred to the charity's name and keep a copy of this record.
For tax records, take a photo of the car and keep copies of current classified ads or car value guide estimates for similar vehicles. (For more deductibility information, get a copy of IRS Publication 561, Determining the Value of Donated Property.)
If the vehicle is worth more than $5,000, get a written professional appraisal
The information on this page/website is based on our interpretation of current IRS rules, and is not intended as personal tax advice. You should consult the IRS and a professional income tax advisor for any advice on the documentation and tax deductibility of any donation.
© 2007 Family Services Center - Huntsville, AL
