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Donating Your Old Car to Charity
from: Lynn KenilworthI had an old 1988 BMW sedan and a 14 year old son. The car ran well, but was looking a little shabby so I got the car fever and bought a newer car. I decided to keep the old faithful BMW for my son's first car.
He drove the car for two years, got a part time job and decided he needed a better looking car. (We know how important this is to young men, don't we?) This was after he inflicted a few more bumps, bruises and scratches on the ever faithful BMW. At that time, the Kelly Blue Book value on the BMW was $3000. The car ran well, but, as you can imagine, the body had seen better days. So I decided to donate the car to charity instead of going through the hassle of selling it.
I called Salvation Army and they offered to come and pick up the car, leave the paperwork necessary for my tax returns, and drive the car away. It was a painless process for me and a great tax break. That was 2004, though, and the tax laws have changed a little (a lot!) since then.
The General Accounting Office did a study of fiscal year 2000 tax deductions from 733,000 car donations with claims valued at $654 million. They found that in nearly 75% of the cases studied that the charity only received around 5% of the donated vehicle's fair market value versus what was claimed on the individual tax return. So, in ususal IRS fashion, laws were changed and a mountain of paperwork was added to the charities and taxpayer.
The low return for the charity is partly caused by the fact that the car is normally sold at auctions or wholesale. Also, towing costs (yes, they will tow the car if it will not run), vehicle restoration, advertising costs and online resource costs reduced the profit margins for the charities tremendously.
So, the IRS took action and reformed the deduction standards. As of 2005 tax returns, a tax payer donating a vehicle will receive a deduction based on how the receiving charity will use the vehicle. (Say what?) This change means that the donor will be able to deduct from his taxes only the amount the charity earned from selling it. OR, if the charity uses the car in 'significant' tax-approved charity work, the donor can deduct the fair market value.
As if this were not bad enough, now the donor has to attach a Form 8283 on a deduction of $500 or more, and will require an appraisal from a qualified appraiser. Quite a bit more hassle than I had to go through in 2004. Needless to say, a lot of donors and charities have decided that it is just not worth it, and donations have fallen tremendously.
The larger charities, however, are still in the car donations business and will help you with every step of the process. So don't discount the idea alltogether. It can still be a good deduction working with the right charity.
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