Donation is more than saying goodbye

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Owners should consult their accountants and expect legal shoals when giving a vessel to charity

Owners should consult their accountants and expect legal shoals when giving a vessel to charity

Editor’s note: Arnold V. Amore is a civil and criminal litigation attorney based in New Haven, Conn. He recently donated his boat at a time shortly after new tax laws for donations had taken effect.

On a crisp, sunny October afternoon, Paul Jacques, owner of the Dutch Wharf Boat Yard & Marina, in Branford, Conn., directed me to his foreman, Sam Smith. Sam’s job was to inspect my 27-foot Catalina sloop, Sea Bear, and make a recommendation as to whether DutchWharf would be willing to sell her. After looking Sea Bear over, running her Mercury “big foot” 9.9-hp outboard, and taking inventory of her features and the numerous upgrades I’d made to her over the last eight years, Sam remarked, “I can’t believe that you’re giving her away.”

After a great deal of thought I told my wife, Donna, that I was donating Sea Bear to the SARAH Foundation (www.sarahfoundation.org ), a non-profit organization that works with special needs adults in Connecticut. SARAH’s mission is “to make independence possible … one person at a time.” As an attorney, I work with SARAH services and see the results of their programs as part of my community service involvement.

Though the decision to donate Sea Bear was not an easy one, in the end I donated her for a variety of reasons. First, Sea Bear is in above-average condition. By donating her, I fully expect that SARAH will receive her net proceeds (i.e., the amount realized from a transaction minus the costs associated with making it.). Second, though we love to sail, unforeseen family obligations took our lives away from sailing. When your boat lies due east and the current of your life constantly pushes you north, it’s quite difficult to get to your boat.

Finally, when I bought Sea Bear in 1998, she filled a large void in my life. Owning Sea Bear exposed me to the joys of learning to sail, read charts, discover marina life, and taught me how to maintain and improve a sailboat. She also took Donna and me on a magical trip to Sag Harbor, Montauk and Block Island. Though we have wonderful memories of that July trip, it was not lost on us that the trip took place four seasons ago.

Don’t go it alone

For those boat owners who are considering whether to donate their boat, there are a few things that are important to know. The wisest course of action is to have a consultation with your accountant to determine what your actual federal and/or state tax benefits are before donating your boat to any charity.

After consulting with my accountant, I was surprised to learn that the value of a donated boat is based on the gross sale price of the boat and not her surveyed value. For example, Sea Bear was surveyed in 2005 and valued at $13,000. Since the surveyed value of a boat cannot be automatically deducted, think of your boat’s value as if it were the appraised value of a house. Until the boat or house sells, you cannot determine the actual gross sale price of this asset.

For this reason, if you donate your boat and it does not sell in the same tax year you donated her, it is prudent to take an estimated tax deduction for less than what the boat is surveyed for. If your boat sells for more than your deduction, an amended tax return can be filed allowing for a greater tax deduction in that tax year.

Another approach is to file an extension on your tax return and wait until your boat is sold before you take the tax deduction. If you overestimate the gross sale price of your boat and take a greater deduction than what the boat sells for, you could find yourself owing money to Uncle Sam, plus interest and penalties. These issues can be eliminated if you donate your boat in the same tax year that it sells.

Protect all parties

Boat insurance is another important consideration. In October 2006 Sea Bear was in her slip. Prior to donating her I contacted my insurance carrier and several other insurers. I learned that insurance companies are interested in insuring individual boat owners, not non-profit organizations such as SARAH. If I donated the Sea Bear to SARAH in October and she sank in her slip, there would be no insurance coverage.

For these reasons, I waited until Sea Bear was hauled, professionally blocked and winterized before donating her. Then I notified my insurance carrier of the donation date to receive a pro-rated refund of my insurance premium. In this way, I was able to insure Sea Bear against loss until she was safely ashore and on-the-hard.

Though the process of donating a boat varies, my donation worked as follows: After talking to staff at DutchWharf and SARAH separately, DutchWharf and SARAH signed contracts that covered the sale and winterizing of the boat. Once Sea Bear was on the hard, I contacted SARAH and wrote “donation,” instead of a purchase price, on the bill of sale and signed it. Then I sent the bill of sale to SARAH.

My advice is to talk to the marina or boatyard and the charity prior to donating your boat. All parties need to agree on the donation details. Some charities use specific boat brokers or have other donating procedures. Some marinas might not want to sell a donated boat regardless of her condition.

Once Sea Bear is sold, SARAH will send written verification of the gross sale price to me, and these documents will be filed with my tax returns.

I donated Sea Bear Dec. 8, 2006. After removing my personal effects for the last time, I realized there would be no spring commission to look forward to. When I arrived home, wearing sunglasses and looking as if I had just attended the funeral for my best friend, Donna greeted me with the following words of encouragement: “I want you to know that we will own another boat.”

Though her words were comforting, saying goodbye to my first boat was far more difficult than I ever expected it to be.

Sea Bear is currently waiting for her new owner at Dutch Wharf Marina, (203) 488-9000.