Boat Donation Behind The Scenes
By Michael Vatalaro
Donating your boat to charity certainly is a generous thing to do, but it could be financially smart, too, if you haven't been able to sell it in this market. Here's how it works.
Let's say that you're like I am, an owner of a good-sized older boat, that runs well but the interior is dated. In my case it's a 32-foot flybridge sedan from 1979. Fully refurbished and in the right local market, according to comparables, it might go for as much as $18,000. But in its present condition and location, the best offer I've received in more than a year on the market is $10,500. After my broker's commission (and a few items to address after a survey and sea trial) I'll be lucky to walk away with around $8,000.
Fred Kettinger from Norristown, PA, took this beatiful sunset shot on the Sassafrass River, in Maryland for our photo contest last October.
With a new family, my wife and I would like to buy a different boat to put in the marina slip that's already costing us $4,000 a year, so at this point, we're weighing the pros and cons of donation. Surprisingly, it turns out that such an option might work well for us. If we donate our boat to a national charity that uses a "smart" facilitator, meaning one that will spend the time and money to update the interior, and perhaps even move it to a better local market for our make and model, it could fetch the full market value of $18,000. As a donation, that grants us an $18,000 tax deduction, which depending on our tax rate for the year, could result in as much as $6,000 off our tax bill. The actual cost to us would be about half our annual slip fee, and the charity we choose might receive as much as $7,500. We wouldn't need to lift a finger, other than to make a call.
On the other hand, if we donate the boat to a local charity that doesn't use a facilitator experienced with boats, one who ships it to auction to sell quickly, the final selling price most likely will be much lower, likely less than our best offer. The charity, after paying the auction commission, would end up with less money, and our write off would be perhaps only worth $2,000 or so.
Before considering donation, ask yourself some simple questions.
1:Do I itemize my deductions on my tax return? Only about a third of Americans itemize deductions, the rest take the standard deduction. Donating a vehicle will only benefit you as a tax write-off if you itemize.
2:Do I have enough income to offset? The IRS only allows you to claim charitable deductions totaling 50 percent of your Adjusted Gross Income (AGI) in a given year. So, if you donate a boat worth, say, $30,000 as in the example below, to receive the full benefit of the donation, you'd need to have earned enough that year to have an AGI of at least $60,000. If you usually make additional charitable donations, they also count against that 50-percent limit.
While donating a boat to charity often amounts to a major gift for the receiving organization, it doesn't have to be a major undertaking for you, the boat's owner. Many nonprofit organizations use a specialized facilitator to handle the transactions, making the process efficient for the donor, and easy for the charity of your choice. Of these specialized firms, only a few can handle larger, non-trailerable boats, which typically require more effort and knowledge to sell on behalf of the charity. For this article, we'll focus in on one of those, Action Donation Services, with which the nonprofit BoatUS Foundation for Clean Water and Boating Safety has chosen to work for boats being donated to them. (There are other organizations that operate similarly.)
"One of the things that Action does, which separates us from others, is we'll do everything we can to maximize the value of the donor's boat," says Ted Cox, National Director of Client Charity Development for Action Donation Services. "As long as it's cost-effective, we'll pay for rebuilding engines, renovating interiors, fixing things that will pay back when we sell the boat in the retail market, rather than at auction." Maximizing the value of the boat benefits the charity, of course, but it also really benefits the donor, who gets the largest possible tax write-off. For people who are fortunate enough to have income that they'd like to offset, this may be a smart option.
Taking The First StepThe process starts with a phone call. If you're thinking about donating your boat, have the boat's title, documentation, or other relevant paperwork on hand before you call. The vessel's Hull Identification Number (HIN) or documentation number will allow Action to do a quick check to find out if there are an encumbrances or liens on the boat that have to be factored into whether or not they can accept it. While they will accept boats in non-working condition in some cases, the cost of repairs must not exceed the expected value of the boat, otherwise the charity would receive nothing in return.
Other information that Action will gather includes the make, model, and year of the boat, plus its location and condition as best as you can describe. In some cases, you'll get an immediate answer as to whether or not your boat can be accepted. If the situation is more complex, you may need to wait an hour or so for a return phone call. Occasionally, an informal survey or brief appraisal may be required, done on Action's behalf and at their expense for most boats. (Larger yachts may require a formal survey.)
Once your boat is accepted, you schedule a pick up, after which you'll receive a receipt saying your boat was received. "From the date we take possession of the vessel, it becomes our responsibility," says Joe Witt, operations manager for Action. Witt handles many of the details of vessel donations for Action. "We insure it, pay the holding costs, and begin to prepare it for market." This may mean a simple wash and detail job, or a more serious renovation or electronics upgrade. You've relinquished ownership and are simply waiting for it to sell. The boat has effectively been transferred to the charity through Action (the exact details of title transfer vary from state to state). As the donor, you're entitled to a tax deduction equal to the gross selling price of the vessel in most cases. When Action completes the sale of the boat on behalf of the charity, you'll receive an IRS form 1098-C with that selling price listed, which you can then use to file your taxes. The actual amount you'll save on your taxes depends on your financial situation, including your tax bracket. Consult your tax preparer or www.irs.gov/pub/irs-pdf/p526.pdf for more information.
Action has incentive to invest their time and money in these boats, move them to better markets if need be, and do what it takes to get the most money for them because, instead of commission, they split the profit (after expenses) from each sale 50/50 with the charity. Considering that Action is experienced in selling these boats, and has built a network of brokers and dealers over the past decade, even overseas, they get more money for them than you, or your charity, could've gotten on your own; and they get the job done expediently.
Why You Might Say Goodbye"I'd had the boat 22 years," says a charity-minded BoatUS member who prefers not to be named. "We put it up for sale in the summer of 2010, but only one person came to look at it. All of a sudden, it's Labor Day, and I'm looking at winter storage, plus next year's slip fees, totaling six or seven thousand out of pocket." The 1988, 40-foot Silverton was in good condition, but just wasn't selling in the Detroit area. "Action sent the local dealer out to survey it. Eventually, they shipped it down to Ohio where it sold immediately for $30,000. I donated it in September to the BoatUS Foundation; they received a check in December." Action invested just a few hundred dollars to clean the boat and pilot it to the right market. The Foundation received a check for more than $14,000 for its safe-boating and clean-water initiatives.
Vadim Hsu also found his boat wouldn't sell. "I bought a Luhrs 32-foot powerboat in 2005 and was very happy with it for several years. But we finished an expensive remodel of our house just as the economy turned. I listed the boat, and dropped the price several times, but couldn't sell it." Hsu opted to donate his boat to the Cal-Diego Paralyzed Veterans Association, through Action Donations Services' "Partial Cash Payment" option. Known as a "Bargain Sale" in IRS terminology, this type of donation takes a high-value boat and provides a portion of the market value to the donor in cash. The cash accepted up front is deducted from the final selling price of the vessel when calculating the amount of the donation and tax write off. While this results in a lesser amount given to the charity than a boat donated in full, it provides an incentive for owners of more valuable boats to make the donation in the first place – because their personal-deduction potential would be maximized.
In the case of Hsu's Luhrs, Action spent several months and several thousand dollars refurbishing the boat, including new paint, and upholstery. It sold six months after being donated, for $95,000. Action spent nearly $25,000 on the refurbishing job, money Hsu simply couldn't have spent to get it sold. "I can only guess that it would still be on the market today if I hadn't donated it," says Hsu.
Thinking About Donating? The Time Is NowThe IRS moved in 2005 to close some loopholes in the vehicle-donation process. Before that, the year of your tax deduction was determined by when you donated your boat. Now, because the actual selling price determines the amount of your write off, your boat must sell before you receive your 1098-C. This means that a boat donated this year that doesn't sell until next year won't help you with this year's taxes, or you'll have to file an extension or amended return to count it against the prior tax year.
However, within the new tax rules, there are still other options available to legally maximize your deduction, especially for high-value boats. If the charity makes significant intervening use of your boat after donation, you are entitled to the fair market value, rather than the amount it brings at auction. "Significant intervening use" generally means using the boat as part of the mission of the charity. So if your local Sea Scout group was to accept your boat as a new training vessel, you could deduct the appraised value. Talk about the options and tax law with your accountant.
If you're considering donating your boat to a nonprofit organization, the sooner you make the call, the better chance you have of getting a 2011 tax deduction by December 31 and, moreover, helping a charity you care about sooner rather than later.
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Check The CharityAlways investigate charities before making donations. Some phony companies use names that are similar to legitimate organizations. Before making a donation, ask for written information about how much of the money from your boat's sale will actually be used for charitable purposes. Ask your Secretary of State if the charity is registered to solicit in your state. Information about specific charities can be obtained from your local consumer protection agency, as well as the Better Business Bureau (bbb.org), www.charitywatch.org and www.guidestar.org.
Making The Math WorkCharitable deductions decrease your tax bill by lowering the amount of income you're taxed on. Deductions are not credits, you don't receive a tax break equal to the value of the deduction. Instead the amount of your donation is subtracted from your income, so you are in essence taxed less. Your tax benefit from the donation can be calculated roughly by multiplying the value of the donation by your highest marginal tax rate for the top bracket for which you qualify.
For example, if you're single, and your income for 2011 was between $83,601 and $174,400, you'd pay at the 28 percent rate for each dollar above $83,601. So if your earnings totaled around $150,000, and you donated a $30,000 boat, your tax savings would be around $8,400 ($30,000 deduction x 28% = $8,400).