24 Dec 2004 New Vehicle Donation Law To Hurt Charities

Reason Online comes down hard against a change in federal tax policies that will hurt charities that finance operations by accepting donated cars.

I hope Congress will step in and reverse this change.

Here’s an excerpt from the Reason piece, but I recommend you read the whole thing (better yet, print it and mail it to your Congressman).

…New laws that take effect just after the holiday season allow Uncle Sam to take more money come tax time. The extra money comes from those who donate their cars to charity, but discover that the amount they can deduct has shrunk dramatically. The truly humbug twist is who will get hurt by the grab — charities that generate income from donated cars and the needy people they help. More than 4,000 organizations help everyone from battered women to single moms to disabled veterans, but Americans will soon have less incentive to support such efforts.

Beginning January 1 those who donate a car worth over $500 will be able to deduct only the amount the charity gets in resale, not the previously accepted Kelley Blue Book value. So if your old Chevy’s blue book value is $2000, but the charity you give it to sells it for $600, you can only claim a $600 deduction. And if repairs were necessary, their cost must also be subtracted, and the deduction shrinks again. Since most donated cars are sold at auctions, they already sell for less than if they were hawked on a used car lot. Faced with dwindling deductions, more would-be donors will likely opt to keep their cars, sell them or trade them in.

The Salvation Army expects income at some of its busiest programs to drop 25 percent, and Christian Auto Repairmen Serving (CARS) expects a 30 percent drop in income. CARS sells donated autos and uses the money to provide cars to single moms and others in need of reliable transportation.

The new laws also dump new costs onto charities, most of which already operate on shoestring budgets. Charities that accept cars must now contact the donor within 30 days after they resell it, providing a receipt which the donor uses to claim his deduction. To meet such requirements charities must maintain databases of cars, donors and sales. CARS worries that the new regulations will double its postage costs, and the Salvation Army predicts that the added paperwork will hamper its activities even more than the lower deductions.

…We must assume that the government targeted this kind of giving precisely because Americans have given away so many cars. In 2000, 733,000 Americans claimed deductions for donated cars…

This puts the government in the strange but not unaccustomed position of punishing success. Automobile donation has been a tremendous boon to entrepreneurial charities who realized that many potential donors who were hesitant to write a check would be willing to donate a used car…

In case you are wondering, The National Center for Public Policy Research is not financed through donations of used vehicles, though David and I did donate David’s Ford Ranger pickup truck to Goodwill in 2000, and took a tax-deduction for it. The truck was in great shape, but it is hard to fit three baby seats in a pickup.

Legally, anyway.