Want to gift your boat or stuffed boar’s head to charity? It may be more of a tax curse, as the IRS cracks down on non-cash donations

Spain told Moneywise that in recent months, she’s seen the IRS cracking down on people who donate boats in particular. She has heard about it from clients selected for audits. The federal agency may dispute the stated value of the boats and the tax write-off the donor is claiming.

Such gifts present a hassle for charities too, requiring extra paperwork to satisfy the IRS.

“It’s a lot more burdensome than a simple cash donation,” Spain told Moneywise.

A charity recently approached her for advice on a boat donation, with the donor placing a restriction on how the organization could use the boat.

“We talked through the reporting requirements and what to do with that potential donation,” she said. “They decided it was a bit more trouble than it was worth.”

This is true of many non-cash donations. Here’s a look at the rules around non-cash donations and how to weigh whether it’s worth it.

Staying on the right side of the tax man with non-cash donations

As Forbes reports, the IRS started cracking down on charitable gifts of boats, cars and planes in 2004 in response to a tax fraud known as the Blue Book Scam. Donors were giving worthless cars to charity and claiming sizable tax deductions based on their supposed “fair market value” per guides like the Kelley Blue Book.

Today, the IRS determines the value of a boat, car or other non-cash donation based on its true fair market value based on a legitimate appraisal.

“Keep in mind that the fair market value of a boat is a lot higher than a car,” Spain notes. “Some of these boats are worth millions of dollars.”

If the charity sells the gift immediately, the donor can only claim a deduction equal to the proceeds. That means if the boat’s fair market value is $30,000 and the charity sells it for $10,000, the donor can only claim a $10,000 deduction on their taxes.

If a donor knows they’re donating a vehicle (car, boat or airplane) to be sold for scrap and the charity gets less than $500 for it, the donor can claim a $500 tax deduction, but must fill out IRS Form 1098-C.

If the charity doesn’t sell the non-cash gift immediately, it must provide the donor with a written acknowledgement of its intention to do one of the following:

1. Use it for its own purposes. For example, a nonprofit scientific organization may use a donated yacht for research. This is called “significant intervening use.”

2. Give it to a needy individual at a discounted price.

3. Improve it. For example, install a new motor in a boat or a transmission in an old car and sell it.

In these scenarios, the taxpayer can claim a deduction based on the true fair market value of the gift at the time of donation, based on a reputable appraisal. The donor must include the charity’s written acknowledgment of use and fill out IRS Form 8283 when they file their taxes.

What to do before you make a non-cash donation

If you’re considering making a non-cash donation to a nonprofit, rule No. 1 is to make sure you work with a legitimate 501(c)(3) charity. Otherwise, you won’t be able to claim any tax deduction.