Now that the rules have been changed regarding the donation of vehicles, boats and trailers, the rules have changed on both sides of the charity organizations that have always been the central concern in the minds of donors.  Indeed, these rule changes were designed by the IRS to help ensure that more money from the sale of an auto or boat is directed at the charity itself and not just the third-party (usually for-profit enterprise) agent that handles the sale.

While non-profit (NPO) and charity organizations have been taking durable and appreciated goods as donations for a very long time, a major change in the tax laws that govern vehicle donations in 2005 have led to a new set of paperwork and documentation that you can expect from the charity organization you choose.

When you contact the charity organization of your choice or answer an ad calling for your unloved and unused boats and autos, you will very often be asked to vouch for its condition.  You should also be asked about the make a model of your automobile or boat.  This will help the charity determine if the vehicle is likely to warrant an independent appraisal or not.  This independent appraisal must be carried out within 60 days of the title transfer and must be done by an authorized appraisal agency, as approved by the IRS.

If a non-cash donation is likely to be valued at $5,000 or greater, such an appraisal is a necessary part of the documentation you’ll be required to present to the IRS along with a fully filled in Form 8283 (section B).  It’s often a good idea to take some pictures of such a high-value donation to your favourite charity organization, too.

The next most important thing you can expect from your charity organization of choice is a receipt of title transfer and a statement of intent.  They are required to deliver such documents to you within 30 days of receipt.  Generally, the better the condition of the vehicle you’re donating, the more likely it is to be used, as is, rather than being sold at auction.  This means that you have a much better chance of being able to claim a much higher legitimate deduction.

When you receive your invoice of intent from the charity organization, you’ll notice that it should outline the conditions by which the donation was made.  For instance, the IRS cannot tax non-tangible benefits such as your personal satisfaction, but they can make adjustments to your allowable deduction (in the form of an audit) if you’ve received any type of gift from the charitable organization that can have a value reasonably ascribed to it.  If you got as much as a calendar or a coffee mug in return, make note of it and subtract its fair value from your deductible.

If the charity organization ends up selling the car within two years of receipt, even if it has been used during that time to fulfill the charitable mission, you will receive a notice of sale (Form 8282) within 30 days of the sale.  That doesn’t mean you have to do anything to change the deduction you’ve already taken nor, are you able to take a second deduction.

Remember, if you’re donating an automobile, boat or RV to a charity organization, you won’t be able to claim any sort of deduction unless you file with a list of itemized deductions (as opposed to the standard deduction that applies, depending upon what status you choose to file under).  Many people find that since they don’t have any other legitimate deductions in a given year that it actually saves them money to forget that the donation ever happened.  In fact, when the GAO investigated filings from 2000 (even before donation deductible oversight was in place) as many as 15% of donors didn’t even bother taking itemized deductions.

However, regardless of how you choose to file your own tax returns, the charity organization you choose is beholden to provide you with all the documentation you’ll need to make sure the maximum possible deduction benefit allowed under law is yours.

With the sweeping legislation that caused a steep decline in the amount of money represented by auto donation, boat donation has also suffered a similar loss due to the plugging of a loop hole that was benefiting everyone except the federal government and the charities themselves. However, there are still perfectly legitimate and far more efficient ways to use boat donation to benefit your favorite charity if that is your motivation.

In the past, one could donate a boat, RV, motorcycle, trailer or just about any type of vehicle or appreciated object to a third-party agent that would handle the title transfer and sale. Such boat donations were almost always destined for the wholesale market, as it was faster and cheaper to get a small profit as it was all profit for the third-party agent since very little paperwork or oversight was required in such a low-end market.

By 2005, the rules that had been allowing for-profit organizations to charge exorbitant fees for their services, filing only the most minimal of paperwork and claiming as much as 80% of the wholesale value in fees to the charity, changed. As if by magic, those for-profit companies that legitimate charities had relied upon started pulling out of this now less lucrative market that was now asking for itemized statements of expenses and far stricter bookkeeping.

There have always existed non-profit organizations (NPOs) that took a more efficient approach to boat donation and handled the sale of watercraft to private parties themselves. Under current tax laws, this means that boat donations in excess of $500 are valued at the amount they’re sold for. As such, the deduction from your boat donation depends heavily upon how much effort is put into the sale. Charities that have always practiced their own high value sales have been well-positioned to take advantage of the cars still being donated.

Often, however, the boats offered up for sale from the boat donation market are not in particularly good shpae. This was how even perfectly legitimate uses of boat donation were actually cheating the IRS (and eventually many of the programs and services that rely upon federal funding) out of millions every year. When even a “poor” value was taken from an appraisal book or website, this value wasn’t’ a good representation of most boat donations. Even a boat in “poor” shape still describes one that reliably holds water and not all boat donations could say that.

On the other end of the spectrum, boats and yachts that are worth more than $5,000 are subject independent appraisal when they’re part of a boat donation. This appraisal should jibe with the amount the boat is eventually sold for. If not, both the charitable giver and the selling organization open themselves up to further investigation by federal officials.

Another complication with high value boat donation is the so-called “50% rule.” According to this stipulation, you are only allowed to claim 50% of your income in charitable donation in any given year. So, if you don’t make very much money but inherited a large boat, you may have to sell it yourself and make individual contributions from that money rather than giving the whole boat to charity.

Charitable NPO exceptions to this include educational organizations that take at risk children on fishing trips or help instruct a college class in bass fishing. As improbable as it sounds, a boat donated to the local police department for finding drowning victims is also an accepted type of direct donation.

It is often a matter of personal taste when giving away an old boat (rather than selling it yourself), especially one that isn’t in very good shape. You may have to consider whether it’s worth your while to itemize your tax return for the deductible value of a boat that was only fit for scrap metal.

Often mid- to lower income individuals and families take standard deductions anyhow. As such, donating a boat that isn’t in very good shape is less attractive than recycling options that pay off in hotel vouchers or cruise ship coupons rather than making pretenses about tax deductions from boat donation.

Caution is the new rule of law with boat donation. Contact your favorite charity and ask them how they handle boat donations before you make a decision.