Here is a short video with Tom Herman of the WSJ discussing the rules for claiming a deduction for a donated vehicle.

After all of these years reading Tom Herman’s columns in the WSJ, this is the first time I have seen what he actually looks like.

Over the years, I have discussed this topic several times and the biggest misconception seems to be with the term Fair Market Value. Even Mr. Herman glosses over this point in this video.

Most people assume that the Kelley Blue Book value is gospel as establishing a vehicle’s value. The truth is that the only true determination of an item’s worth is what it will actually fetch on the open market, as per this definition from all over the web.

The price that an interested but not desperate buyer would be willing to pay and an interested but not desperate seller would be willing to accept on the open market assuming a reasonable period of time for an agreement to arise.

That is why the relatively recent IRS rule requiring people to use the charity’s actual sales price of the vehicle for the charitable deduction makes a lot of sense. That isn’t something you ever see me say very often; IRS doing something that makes sense.

I don’t follow used car prices or track what Kelley Blue Book has been doing in response to the higher fuel prices. However, if they haven’t dropped values of gas hogs to reflect their decreases in the real world, that is no excuse to consider the Blue Book prices as Fair Market Value.

Update:

A day after posting this, I sent the following to a client:

We received your 2007 personal tax organizer and other docs. I’ve
looked them over and the only item that is obviously incomplete has to do with the Jeep you donated to St. Vincent de Paul (SVP).

I see that you wrote $2,000 in the organizer as the value, but that won’t be enough documentation. As the letter from SVP says, you need to have a 1098-C from them showing how much they actually sold the vehicle for if you are going to claim a value of more than $500. I didn’t see a 1098-C among the documents that you sent in. Please contact SVP to obtain a new copy of that form or else we will have to stick with a deduction of just $500.

To help you understand more about this issue, I have attached a copy of the page from The TaxBook, my main tax reference book with the section on vehicle donations circled in red. Please look it over and see how your situation matches up with the examples shown.

Also, just by coincidence, I recently posted an entry on my blog, with a video from the WSJ, on exactly this subject.

Thanks for you help with this. Let me know if you would like to set up a phone appointment to discuss the details of this in more depth.

Kerry

The client wrote back:

I don’t have any such documentation. In that case, I’ll go ahead and claim $500.

Thanks,