Form 1098-C Instructions: How to Complete and Use It for Taxes

Form 1098-C plays a key role in the tax filing process for individuals donating motor vehicles, boats, or airplanes to qualified charitable organizations. It ensures transparency between donors and the IRS, maintaining compliance with tax regulations regarding non-cash contributions.

Understanding how to properly complete and use Form 1098-C is critical for maximizing tax deductions while staying compliant. Let’s explore when this form is required, the details it contains, and how to incorporate it into your tax return.

When This Form Is Required

Form 1098-C is necessary when a taxpayer donates a motor vehicle, boat, or airplane to a qualified charitable organization and the claimed value exceeds $500. Under Internal Revenue Code Section 170(f)(12), donors must obtain a written acknowledgment from the charity to substantiate their deduction. This form serves as that acknowledgment, outlining the details of the donation and the charity’s use or sale of the asset.

The IRS requires this form to prevent inflated valuations of non-cash contributions. If the charity sells the vehicle, the donor’s deduction is generally limited to the gross proceeds from the sale, unless the charity significantly uses or materially improves the vehicle. This ensures the deduction aligns with the actual benefit received by the charity.

The charity must provide Form 1098-C to the donor within 30 days of selling the vehicle or, if the charity intends to use it, within 30 days of the contribution. The form includes critical information, such as the vehicle identification number, the contribution date, and the charity’s certification of its intended use or sale.

Donor Details on the Form

Donors must ensure their personal information is accurately reflected on Form 1098-C to avoid discrepancies. This includes their full legal name, address, and taxpayer identification number (TIN), typically their Social Security Number. These details link the donation to the donor’s tax records.

The donor must also provide the date of the donation and an initial fair market value assessment of the asset. While the charity provides further valuation details, the donor’s initial estimate establishes a baseline. Using reliable valuation guides or professional appraisals ensures accuracy and compliance with IRS guidelines.

Organization’s Reporting Steps

The charitable organization begins the reporting process by evaluating the donated asset to determine its use or sale. This decision directly impacts the donor’s tax deduction. The organization must follow IRS guidelines to ensure compliance.

After finalizing its decision, the organization documents the transaction by completing Form 1098-C. This includes a detailed description of the vehicle and the date of contribution. If the vehicle is sold, the organization must report the gross proceeds, which determine the donor’s allowable deduction. Accurate reporting is critical for verifying the deduction’s validity.

Boxes and Key Data to Review

Form 1098-C contains sections that must be reviewed carefully by both donors and charities to ensure compliance and accuracy in reporting the donation.

Vehicle Description

This section identifies the donated vehicle with details such as the vehicle identification number (VIN), make, model, and year. Accurate information is vital, as errors can attract IRS scrutiny. The VIN, a unique identifier, is particularly important for verifying the vehicle’s history. Charities should cross-check this information with their records and valuation reports.

Sale Proceeds

The gross proceeds from the sale of the vehicle are reported in this section, which directly affects the donor’s deduction. If the charity sells the vehicle, the donor’s deduction is limited to the sale amount. Charities must ensure the sale is conducted fairly and that the proceeds are reported accurately.

Certifying Statements

This section certifies the charity’s intended use or sale of the vehicle, substantiating the donor’s deduction. The charity must indicate whether the vehicle will be used for a significant charitable purpose, materially improved, or sold. Each scenario impacts the donor’s deduction differently.

Attaching It to Your Tax Return

Once Form 1098-C is complete, it must be attached to the taxpayer’s federal income tax return if they are claiming a deduction for the donation. The form accompanies Schedule A of Form 1040, used for itemizing deductions. Taxpayers taking the standard deduction cannot claim this contribution.

The IRS requires the original Form 1098-C, not a photocopy. Missing or incomplete forms may result in disallowed deductions. Taxpayers filing electronically should check with their tax software or preparer for submission instructions, as some platforms allow digital uploads while others require mailing the original document.

The deduction claimed on Schedule A must match the information on Form 1098-C. Discrepancies can lead to audits or delays. Double-checking entries and maintaining clear records can help avoid these issues.

Recordkeeping Guidance

Proper recordkeeping is crucial for non-cash contributions like vehicle donations. The IRS recommends keeping all documentation, including Form 1098-C, the charity’s acknowledgment letter, and any supporting records, for at least three years from the date you file your tax return. Supporting documents may include receipts, photographs of the vehicle, or professional appraisals.

For donations exceeding $5,000, additional documentation is required. Taxpayers must obtain a qualified appraisal and complete Section B of Form 8283, which is submitted with Form 1098-C. The appraisal must meet IRS standards outlined in Publication 561.

Organized records not only support your tax deduction but also provide clarity if the IRS raises questions. Detailed documentation ensures a smoother resolution process if verification is required. Digital backups of all records can also serve as a safeguard against loss or damage.