Don't Roll the Dice When Making a Car Donation to Charity

For over two decades, making a vehicle donation to a charity has been very popular for those trying to get rid of that old unwanted car.Many charities across the country have become quite dependent on the funds raised through vehicle donations. So much that the rise of numerous vehicle donation processing companies have begun to fill the automotive landscape, giving way to many options for charities and donors alike. Unfortunately, many of these companies have become complacent in how they process your vehicle donation, resulting in low sales numbers, meaning minimal write-off potential.VEHICLE DONATIONS - a quick glance backIn the early years of 2000, this landscape had been on rock solid foundation with nothing standing in its way. Then signs of economical instability turned into governmental concerns and eventually lead to governmental action.Ultimately it was the findings of the Senate Finance Committee's investigation by the GAO (U.S. General Accounting Office), spearheaded by its chairman Iowa's Senator Grassley, who had uncovered a multitude of car donation abuses.With part of their investigation focusing on the tax year 2000, results came in claiming approximately 6% of all noncash contributions over $500 reported on returns that year were for vehicle donations. Their analysis estimated vehicle donation deductions lowered taxpayers' income tax liability by $654 million that year alone.The GAO study tracked a judgmental sample of 54 donated vehicles for that year to compare the amount of proceeds the charities received from vehicle sales and the amount claimed as deductions on donor's tax returns.The findings raised eyebrows. From the sample of 54 donated vehicles, the charities only received 5% or less of the actual value the donor had claimed as a deduction on their tax returns.They identified two factors that contributed to this difference.1. Donated vehicles were often sold at wholesale prices rather than at the price the donor might expect if selling the vehicle to a private party.2. Vehicle processing and fund-raising costs are subtracted from gross vehicle sales revenue; further reducing the proceeds charities receive from vehicle sales.They also indicated that they were unable to determine whether individuals claiming deductions for donated vehicles accurately assessed the fair market value of their vehicle, because data as to the vehicles condition was not available. However they mentioned some charities they interviewed stated some of their donors'claims about vehicle value might have been inflated.The GAO's 43 page findings and recommendations were very detail oriented and what Congress eventually approved was included in the American Jobs Creation Act of 2004. The final version of the changed law took effect for tax year 2005.Charity Car Donation TAX LAW OVERVIEW THE OLD DAYS (tax year 2004 and older)A taxpayer could claim fair market value for any vehicle donated to charity up to $5,000 accompanied by a receipt from the charity, regardless of what the charity sold it for. No reporting requirement on behalf of the charity.Anything over $5,000 still required a receipt from the charity, along with IRS tax form 8283 and a required third party appraisal.The charity was required to submit IRS form 8282 once the vehicle sold.TODAYS STANDARDS (tax year 2005 to PRESENT)A taxpayer could claim up to $500 for any vehicle donated to charity accompanied by a receipt from the charity, regardless of what the charity sold it for.A taxpayer could claim whatever amount the donated vehicle sold for by the charity,accompanied by IRS form 1098C completed by the charity,indicating the amount sold and other pertinent info from the donor.If sold for more than $5,000 then IRS form 8283 will be required as well.