Boat Donations for the Rich

[hatteras 1985]

I have been wondering about the boat donation industry. Used to get lots of calls from these 501 (c) 3 groups to sell the boat about 5 years ago. Then the phone calls stopped.

How does the boat donation process work? Does someone who makes six or seven figures a year write off the whole cost of donating the boat?

If Person X donated a boat for $250,000, but they had a federal tax bill of $500,000, would they be only be liable for half ($250k) of that tax bill?

The last thing I am is an accountant, but is the donation "ratio" $1-to-$1?

I tried reading this article from BoatUS but it didn't answer my question.

 

[jim rosenthal]

Some of our broker members can comment, but as I understand it, the donor does not get the deduction credit until the boat actually sells- and then only for the amount it actually brought when it sold. So if you donate a boat to a charitable organization, and they sell it, you get credit for only that amount. There are also some delays involved, I think; you can't get the credit immediately, or perhaps it is that they can't complete the sale immediately. It isn't a slam dunk, from what I can gather.

I suspect that in the past the donation rules were much looser, leading to huge tax deduction that were in excess of the actual value of the boat. (just my hunch here)

Combined with decreased values for older boats, higher maintenance costs, etc, and you could see why charitable organizations might be a little picky about accepting donated boats.

 

[saltshaker]

I have been wondering about the boat donation industry. Used to get lots of calls from these 501 (c) 3 groups to sell the boat about 5 years ago. Then the phone calls stopped.

How does the boat donation process work? Does someone who makes six or seven figures a year write off the whole cost of donating the boat?

If Person X donated a boat for $250,000, but they had a federal tax bill of $500,000, would they be only be liable for half ($250k) of that tax bill?

The last thing I am is an accountant, but is the donation "ratio" $1-to-$1?

I tried reading this article from BoatUS but it didn't answer my question.

It gets a bit complicated but the short answer for your scenario is no, not for that income in one year. The deduction can be spread out over several years and there is a max % of your income that can be deducted as charitable contributions. Boat donations have become a bit more complicated in recent years. In the past a charity would give a value for the donation which could then be deducted. Now if the charity sells the boat in a given period, the amount the sell it for is all that can be deducted. For example if I donate my boat and the charity gives me a receipt for 500K and then they sell it for 200K, I can only deduct 200K. For this reason many won't donate their boats unless they can be assured of the value of the deduction. To do this the charity must retain ownership of the vessel for a minimum of 3 years and must make improvements or changes before selling. Many of these charities will offer the boat for lease for the three years and then you either buy it at the end or return it to the charity. There typically is about a 75-80% cost of the lease with the remainder being the final payment.

 

[hatteras 1985]

To do this the charity must retain ownership of the vessel for a minimum of 3 years and must make improvements or changes before selling.

That is a caveat all right.

The writeoff equaling the sale receipt instead of some predetermined value is understandable. However, why would a charity have to keep a boat for 3 years? Also, what would constitute an improvement? Regular maintenance? New zincs? A bottom job? That 3-year stipulation sounds like a useless rule.

 

[q240z]

"...sounds like a useless rule..."

Yup...that pretty much describes most of the US tax code.

 

[lbkjj]

You asked about a $500,000 tax bill and a $250,000 donation. The donation is a deduction from your taxable income, not a credit against your tax owed. For example, if you are in the 30% tax bracket, the donation saves you $75,000 in taxes ( 30% X $250,000). It gets more complicated because of gift maximum rules, deduction phaseouts etc. but I gave you the simple answer.

 

[saltshaker]

That is a caveat all right.

The writeoff equaling the sale receipt instead of some predetermined value is understandable. However, why would a charity have to keep a boat for 3 years? Also, what would constitute an improvement? Regular maintenance? New zincs? A bottom job? That 3-year stipulation sounds like a useless rule.

The three year rule allows the charity to ensure the value of the receipt they gave the donor. The donor won't be happy if he expects a 500K deduction then the charity sells the boat for only 200K and he ends up with a 200K allowable deduction. As I said earlier, the 3 year rule would allow the charity to ensure the donor the value of the donation will remain after the vessel is sold.

 

[Bugsy]

Jack (Saltshaker)..

Can you reference the code provision that limits the deduction to the sale proceeds?

I have long understood that an "in kind" donation is NOT to be valued by the charity but instead by the donor. The deduction is claimed by the donor and is limited to "market value". This does not include "in kind" donations of business inventory.

I did "Google" the question but not specifically in reference to boats and generated results confirming my understanding.

I've been wrong many times before so learning that this behavior has been repeated won't surprise me.