Page 174 - Washington Nonprofit Handbook 2018 Edition

(i) Qualified Vehicles

A “qualified vehicle” is a motor vehicle manufactured primarily for use on

public streets, roads, and highways, a boat, or an airplane. See Code section
170(f)(12)(E). While the rules apply to donations of new as well as used vehicles,
they do not apply to a donor that held a donated vehicle as inventory or for sale to
customers in the ordinary course of business.

(ii) Vehicles Sold Without Significant Intervening Use or
Material Improvement

If a donee organization receiving a charitable gift of a qualified vehicle sells it
without making any significant intervening use or material improvement of the
vehicle and realizes gross sales proceeds exceeding $500, the donor’s deduction for
the gift is the lesser of the gross proceeds or the vehicle’s fair market value at the
time of the gift, provided all other requirements of Code section 170 are satisfied.
See Code section 170(f)(12)(A)(ii). If the gross sales proceeds are $500 or less, the
donor’s deduction is the lesser of the vehicle’s fair market value when contributed
or $500. See Notice 2005-44, 2005-25 I.R.B. 1287, section 4.02.

(iii) Vehicles Significantly Used or Materially Improved

The rule limiting the deduction for a charitable gift of a qualified vehicle to
the gross proceeds on the donee organization’s sale does not apply if the donee
significantly uses or materially improves the vehicle before selling it. See Code
section 170(f)(12)(A)(ii). If properly substantiated, the deduction for such a
contribution equals the vehicle’s fair market value when donated.

To meet the significant use test, an organization must actually use the vehicle
to substantially further the organization’s regularly conducted activities, and the
use must be significant. A donee organization will not be considered to significantly
use a qualified vehicle if the use is incidental or not intended at the time of the
contribution. Whether a use is significant also depends on the frequency and
duration of use. See Notice 2005-44, 2005-25 I.R.B. 1287, section 7.01(1).

Material improvements include major repairs to a vehicle, or other
improvements to the vehicle that improve the condition of the vehicle in a manner
that significantly increases the vehicle’s value, but not cleaning, minor repairs, or
routine maintenance. See id. section 7.01(2). Services not qualifying as material
improvements include painting, waxing, rustproofing, applications of other finishes,
removal of dents and scratches, repair of upholstery, and installation of theft

WASHINGTON NONPROFIT HANDBOOK -163- 2018