Today TaxMama hears from Dawn in the TaxQuips Forum with a simple question. “I donated a vehicle to charity. The vehicle increased in FMV from the time I purchased it 14 years ago. I donated it for the use of the charity (not for resale). It’s a charity that uses vehicles in their daily activities. Can I take a deduction of the FMV or do I have to use my purchase price? It looks like I can use FMV, but I want to be sure I get it right!”
No kidding? A car that went up in value? Wow! What was it?
The charity needs to give you paperwork about the use and the value.
Here are the rules for property that has increased in value.
Amount of deduction – general rule. When figuring your deduction for a gift of capital gain property, you generally can use the fair market value of the gift.
Exceptions. However, in certain situations, you must reduce the fair market value by any amount that would have been long-term capital gain if you had sold the property for its fair market value. Generally, this means reducing the fair market value to the property’s cost or other basis. You must do this if:
Then it goes on to list some instances… It sounds like double-speak, because it is. This question is not as simple as it looks, is it?
Essentially, you’re probably not going to get to deduct the fair market value – or if you do, your deduction will be limited to 30% of your income.
I have to admit, that neither the IRS publications nor the Tax Code has ever made any sense to me about this issue. Thank goodness I never had a client donating appreciated property – except in a decedent’s estate, where basis was easy to determine.
Perhaps someone else here can give you a better answer. Here’s one brave soul:
David Toelkes makes a stab at this: Since you held the tangible personal property for more than a year, you can deduct the FMV of the property as a charitable contribution, provided you also claim the capital gain that you would have reported if you had sold the property instead.
Capital gain tax rate on personal property is 28%, so depending upon your tax bracket, you may come out ahead taking a charitable deduction on the FMV then paying capital gains on the appreciated value.
My understanding may be flawed because the language is so obtuse
Who knows, perhaps someone can actually translate these rules into English – with confidence?
And remember, you can find answers to all kinds of questions about charitable contributions and other tax issues, free. Where? Where else? At www.TaxMama.com .[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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