- The Washington Times - Wednesday, December 22, 2004

Consumers planning to donate their cars to charity are going to find that after Jan. 1, those contributions might not be so valuable at tax time.

Under current tax law, consumers can donate their used cars — as well as boats and planes — to charitable organizations and, if they itemize, deduct the vehicle’s “fair market value.”

But many in Congress felt consumers were taking unfair advantage of the law by greatly overstating the value of the vehicles they donated, writing off the highest value listed in a used-car buyers guide for clunkers that barely ran.

In addition, many charities really don’t want or need cars, so a system has grown up through which brokers or other middlemen take possession of the donated cars, auction them and give a cut of the proceeds to the charities — often considerably less than the vehicles brought at auction.

In fact, a study conducted by the Government Accountability Office found that in some cases “charities actually received less than 10 percent of the value claimed on the donor’s return … and actually lost money on some vehicles.”

So as part of the American Jobs Creation Act of 2004, Congress slammed on the brakes for big deductions.

Starting Jan. 1, if the claimed value of the car exceeds $500 and it is sold by the charitable organization, the taxpayer will be limited to deducting the gross proceeds the charity receives from the sale.

Charities will have 30 days from the date of the sale to notify the consumer of the amount.

If the charity actually keeps the vehicle for use in its operations or materially improves the vehicle, it must certify that in an acknowledgment to the donor. The donor then may deduct the vehicle’s market value.

William E. Massey, a senior tax analyst at RIA, a New York-based provider of tax information for tax professionals, noted that under the current law, a consumer who donates a car with a Kelley Blue Book value of $1,000 and gets an acknowledgment from the charity can deduct that amount on his or her taxes. Starting next year, that same car — if donated and auctioned, resulting in just $300 for the charity’s coffers — will result in a $300 deduction for the consumer.

Diana Aviv, president and chief executive officer of Independent Sector, a lobby group for foundations and charitable groups based in Washington, said that only about 3 percent of American charities have vehicle donation programs.

“Those that do are deeply concerned about the impact of the new law,” Miss Aviv said. “They worry that the way the law is written is a discouragement to people participating in the program.”

On the other hand, she said, “other groups were deeply concerned about potential abuse and the black eye that abuse was giving the charitable fund-raising sector.”

Miss Aviv does not expect Congress to change its mind about the donated car deduction and, in fact, believes it could go after deductions for other noncash items, such as used clothing or property.

So should Americans rush to donate their old cars before year’s end?

RIA’s Mr. Massey noted that the IRS recently put out a consumer alert outlining the new regulation and detailing how taxpayers should calculate the fair market value of their vehicles under the old regulation.

“They’re saying be careful to document condition and don’t be overly aggressive in valuing your vehicle,” Mr. Massey said. “Its unclear if they flagged deductions for auto donations for audit or not.”

He also pointed out that contributions of property valued at more than $5,000 require an appraisal before the taxpayer can claim the deduction.

ASSOCIATED PRESS

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