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Cash Flow

Giving a Car? Get It in Gear

By Albert B. Crenshaw
The Washington Post
Sunday, November 7, 2004; Page F01

Thinking of donating your car or truck to charity?


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At the end of the year, your tax-deductible coach turns into a pumpkin.

After more than a year of listening to tales of abuse by taxpayers and charities alike, Congress last month changed the law on vehicle donations to make it much more difficult to get a big deduction for handing off your car or truck (or boat or airplane, if you have one of those) to a charity.

Car donations have grown into a cottage industry. The Government Accountability Office found in a study last year that something like 4,300 charities accept vehicle donations and that in 2000 about 733,000 taxpayers took deductions for donating vehicles worth more than $500, which is the cutoff for reporting non-cash donations.

Together these donations lopped $654 million off the taxes owed by these donors, the GAO estimated. The GAO said it had no way to gauge whether the deductions truly reflected the fair market value of the donated vehicles, as the law requires, or whether, as many suspect, taxpayers were using values applicable to cars in much better shape than the ones they were donating.

In any case, when the GAO took a careful look at 54 specific vehicle donations and followed them through the entire process, it found that most of the charities actually netted 5 percent or less of the amounts that donors claimed as deductions. Many of the charities served as little more than pass-throughs, turning the vehicles over to auction houses and collecting whatever is left after towing, auction and other fees were subtracted. The GAO found that charities actually lost money on some cars.

So Congress, in the American Jobs Creation Act of 2004, decreed that after this year the rules will be a lot tougher.

Under the new law, a taxpayer who donates a vehicle worth more than $500 to a charity will no longer automatically be entitled to deduct the fair market value. Instead, the deduction will depend on what happens to the vehicle. If the vehicle goes to a charity that turns around and sells it, the donor will get a deduction equal to the proceeds of that sale. This may not be much. At the 5 percent figure the GAO found, a car valued at $3,000 under today's rules would yield a deduction of $150 under the new ones. If the charity makes "significant" use of the vehicle in its charitable work -- for example, if a program that provides meals to shut-ins regularly uses the donated car for its deliveries -- then the donor will be entitled to deduct the fair market value.

There are also much tighter reporting requirements.

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