IRS Tax Laws for Boat Tax Deductions and Donations
Donating your boat to charity can save you the hassle of finding a buyer and haggling over the price, plus you feel all warm and fuzzy inside. However, if you don't take the appropriate deduction amount, you might more than make up the hassle you've saved if the Internal Revenue Service audits your return.
Sales Over $500
If you donate your boat to charity, chances are the boat is going to sell it to raise money for its mission. If so, you're limited to deducting the sale price the charity gets when it sells the boat. For example, if your boat is worth $5,000 but the charity auctions it off for $3,000, you can only deduct $3,000 on your income tax return.
Fair Market Value Exception
If the charity uses the boat for its mission, you can deduct the fair market value of the boat instead. For example, if the charity promotes marine safety and uses your donated boat to do safety demonstrations, you can could deduct the fair market value of the boat. Similarly, if the charity gives or sells the boat to a needy individual at below-market value as part of its mission, you can deduct the fair market value. For example, if the charity sells boats to needy families at far below fair market value so that they can get around in an island community, you could deduct the fair market value.
Sales Under $500
If the charity sells your boat for less than $500, a special rule applies: you can deduct the smaller of the fair market value of the boat or $500. For example, say your boat is worth $1,000 and it sells for $300. Since $500 is smaller than the fair market value, you can deduct $500. However, if the boat were worth $400 and it sold for $300, you could only deduct $400 because the fair market value is less than $500.
After you donate the boat, the charity should give you a Form 1098-C that shows how much the charity received when it sold the boat. When you file your income taxes, you must use Schedule A to itemize your deductions to claim the donation. In addition, if the donation is worth more than $500, you must attach Form 8283 to document the donation. Boats valued at over $5,000 require a qualified appraisal.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."