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Special IRS Regulations Regarding Charitable Boat Donation
from: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.
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