Beginning next year, the mechanics of donating a vehicle and documenting the tax deduction will become more difficult for donors and charities alike. Many charities are afraid the new rules will undercut their income.
"We just don't know what the effect will be. We are guardedly optimistic," said Jeff St. Romain, chief executive of Volunteers of America in Salt Lake, which makes about $100,000 by selling donated cars. "We will know much better by the end of April."
Under the old rules, which remain in play until midnight Dec. 31, you can donate your car to a charity and write it off for the "fair market value," up to $5,000. If you think the vehicle is worth more than $5,000, you must get it appraised.
But assessing fair market value has always been a slippery aspect of car donation. Usually the donor uses one of the so-called blue books to estimate the value of the car, presumably taking into account excessive wear and tear and mileage. This method offers quite a bit of leeway and, of course, some owners may think more highly of their vehicle than a buyer.
A donor could conveniently dispose of a used vehicle without the hassle of trade in or selling it, support a charity, and claim their estimated tax deduction. Most charities would do the paperwork and even pick the car up from your driveway. A win-win situation, according to participants.
Unfortunately, the Government Accounting Office brought the system down last year when it discovered the federal government was probably the loser in the transaction. The GAO did a survey of some of the sales. The inspectors found that the donated cars were selling for far below what the donors had claimed on their taxes, which meant the government was losing hundreds of millions in tax revenue.
Before it ended, the car donation issue got dragged into a massive federal tax incentive program to help American industry compete internationally. Under the Jumpstart Our Business Strength Bill, charities saw their tax incentive undercut to offset aid to manufacturers.
Beginning in 2005, donors will have to wait until the charity sells their vehicle and can only write off the amount for which the vehicle actually sold. Cars valued at $500 or less, however, still will follow the old guidelines.
Charities fear the new rules could be devastating, particularly to organizations that have come to depend on vehicle donations. Red tape will be increased for everyone, they say, and many may shy away from donating vehicles under such scrutiny.
Luz Lewis-Perez, coordinator of the Utah Kidney Foundation's Kidney Kars program, hopes the program will not be undermined. In past years, it has brought in just more than half the foundation's funding,
"Donating your car is still a very feasible option over selling it or trading it in," she said. "I can't forecast doom because 80 percent of the people who donate cars to us don't claim them on their taxes anyway."
She hopes the "convenience factor" of donating a vehicle rather than selling it will keep the program strong. "And there's still the fuzzy glow to donating it to a charity. Even if it's sold for parts, you know the money is going to a good cause."
Tips for car donation
1. Contact one of the many charities that accept cars and make the arrangements before Dec. 31.
2. Consult a "blue book" of car values, want ads or a used dealer to get an idea of the going rate for vehicles in the same condition
as yours.
3. If the car is worth more than $5,000 you must get a professional appraisal.
4. Keep good records in case of an audit.
