Solved: Is a car donation an audit risk?
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eliot
Level 2

Is a car donation an audit risk?

We are donating a 20-year-old vehicle to a charity. I'm assuming the market value would not exceed $1,000. There are some articles on the internet that warn a car donation is an audit risk. Assuming the car donation would be 1.5% AGI and that we have the appropriate donation documentation, is it worth the risk to claim it as a deduction?

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Opus 17
Level 15

Is a car donation an audit risk?

There's no particular risk, because you can't claim any deduction over $500 for a vehicle unless the charity gives you a signed form 1098-C.  This form will indicate the price the charity received for the vehicle (assuming they sold it) or it will indicate that they are using the vehicle as a vehicle for their charitable purpose.

 

Regardless of what you think the value of the car is, the amount you can deduct is the amount the charity got for it when they sold it. Only if the charity keeps the car and uses it as a vehicle, can you deduct the fair market value, which you would need to determine with one of the blue books or auction records or something similar. 

 

Without the 1098-C, you could claim a value of $500, or you wait until you get the 1098-C and file an amended return when you get the form back from the charity.  They have up to 3 years to dispose of the car and give you the 1098-C.

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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4 Replies
xmasbaby0
Level 15

Is a car donation an audit risk?

Do you expect to have enough other itemized deductions to exceed your standard deduction?  If you do not, then the car will have no effect at all.

 

DONATING A CAR

https://ttlc.intuit.com/questions/2565781-how-much-can-i-deduct-for-donating-a-car

 

STANDARD DEDUCTION

Many taxpayers are surprised because their itemized deductions are not having the same effect as they did on past tax returns.  The new higher standard deduction and the elimination of certain deductions, as well as the cap on state and local taxes have had a major impact since the new tax laws went into effect beginning with 2018 returns.

 

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach. (Only the amount that is MORE than 7.5% of your AGI counts)   The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes.

 

Your standard deduction lowers your taxable income.  It is not a refund.  You will see your standard or itemized deduction amount on line 12 of your 2020 Form 1040.

 

 

2020 Standard Deduction Amounts

 

Single $12,400   (+ $1650 65 or older)

Married Filing Separate  $12,400   (+ $1300 if 65 or older)

Married Filing Jointly $24,800   (+ $1300 for each spouse 65 or older)

Head of Household $18,650  (+ $1650 for 65 or older)

 

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
macuser_22
Level 15

Is a car donation an audit risk?

You do know that is an itemized deduction don't you?   Most taxpayers do not.

Do you have enough other deductions to be more than the standard deduction?

 

For 2018 - 2020 many taxpayers that itemized in the past will find that they can no longer itemize because the standard deduction has doubled so all of their itemized deduction s no longer exceed the standard deduction.

Only if all itemized deductions exceed the standard deduction will it be of benefit.

Not all itemized deductions count the full amount. Medical expenses are reduced by 7.5% of AGI so if your AGI is $30,000, for example, then only medical expenses more than $2,250 would be an itemized deduction.

The 2018 tax law also caps the total of Sales tax OR State and local income tax, Property (real estate and personal property) taxes at $10,000.

Mortgage interest on loans after Dec 16, 2017 may be limited.

The Mortgage must be secured by the property to qualify.

Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.

You can check the actual amount of itemized deductions by using the Search Topics for "itemized deductions, choosing" (under "My Account, Tools" in the online versions). Click on "Change my deduction". That will display the actual amount of itemized deductions vs. the standard deduction. (Be sure to uncheck "Change my deduction" after checking it so you do not lock in the wrong deduction.


2020 standard deductions

$12,400 Single
$18,650 Head of Household
$24,800 Married Jointly

Add an additional $1,300 for over age 65 or blind
This amount increases to $1,650 if the taxpayer is also unmarried.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Anonymous
Not applicable

Is a car donation an audit risk?

if you can itemize deductions there are special rules for a donation of a vehicle valued at more than $500

Qualified Vehicle Donations
A qualified vehicle is any motor vehicle manufactured primarily for use on public streets, roads, and highways; a boat; or an airplane. However, property held by the donor primarily for sale to customers, such as inventory of a car dealer, is not a qualified vehicle.
If you donate a qualified vehicle with a claimed value of more than $500, you cannot claim a deduction unless you attach to Form 8283 a copy of the contemporaneous written acknowledgment you received from the donee organization. The donee organization may use Copy B of Form 1098-C as the acknowledgment. An acknowledgment is considered contemporaneous if the donee organization furnishes it to you no later than 30 days after the:
• Date of the sale, if the donee organization sold the vehicle in an arm's length transaction to an unrelated party; or
• Date of the contribution, if the donee organization will not sell the vehicle before completion of a material improvement or significant intervening use, or the donee organization will give or sell the vehicle to a needy individual for a price significantly below FMV to directly further the organization's charitable purpose of relieving the poor and distressed or underprivileged who need a means of transportation.
For a donated vehicle with a claimed value of more than $500, you can deduct the smaller of the vehicle's FMV on the date of the contribution or the gross proceeds received from the sale of the vehicle, unless an exception applies as explained below. Form 1098-C (or other acknowledgment) will show the gross proceeds from the sale if no exception applies. If the FMV of the vehicle was more than your cost or other basis, you may have to reduce the FMV to figure the deductible amount, as described under Reductions to FMV, earlier.
If any of the following exceptions apply, your deduction is not limited to the gross proceeds received from the sale. Instead, you generally can deduct the vehicle's FMV on the date of the contribution if the donee organization:
• Makes a significant intervening use of the vehicle before transferring it,
• Makes a material improvement to the vehicle before transferring it, or
• Gives or sells the vehicle to a needy individual for a price significantly below FMV to directly further the organization's charitable purpose of relieving the poor and distressed or underprivileged who need a means of transportation.
Form 1098-C (or other acknowledgment) will show if any of these exceptions apply. If the FMV of the vehicle was more than your cost or other basis, you may have to reduce the FMV to figure the deductible amount, as described under Reductions to FMV, earlier.
Determining FMV.

A used car guide may be a good starting point for finding the FMV of your vehicle. These guides, published by commercial firms and trade organizations, contain vehicle sale prices for recent model years. The guides are sometimes available from public libraries or from a loan officer at a bank, credit union, or finance company. You can also find used car pricing information on the Internet.
An acceptable measure of the FMV of a donated vehicle is an amount not in excess of the price listed in a used vehicle pricing guide for a private party sale of a similar vehicle. However, the FMV may be less than that amount if the vehicle has engine trouble, body damage, high mileage, or any type of excessive wear. The FMV of a donated vehicle is the same as the price listed in a used vehicle pricing guide for a private party sale only if the guide lists a sales price for a vehicle that is the same make, model, and year, sold in the same area, in the same condition, with the same or similar options or accessories, and with the same or similar warranties as the donated vehicle.

Opus 17
Level 15

Is a car donation an audit risk?

There's no particular risk, because you can't claim any deduction over $500 for a vehicle unless the charity gives you a signed form 1098-C.  This form will indicate the price the charity received for the vehicle (assuming they sold it) or it will indicate that they are using the vehicle as a vehicle for their charitable purpose.

 

Regardless of what you think the value of the car is, the amount you can deduct is the amount the charity got for it when they sold it. Only if the charity keeps the car and uses it as a vehicle, can you deduct the fair market value, which you would need to determine with one of the blue books or auction records or something similar. 

 

Without the 1098-C, you could claim a value of $500, or you wait until you get the 1098-C and file an amended return when you get the form back from the charity.  They have up to 3 years to dispose of the car and give you the 1098-C.

 

 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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