Donate Your Car: Get A Tax Deductions Options
By Thomas` | March 25, 2009
It's hard to read the newspaper or listen to radio and not
hear ads for donating one's vehicle to charity - regardless
of their claims, it take some effort on your part to donate
a car for tax deduction purposes and benefit everyone
involved. In a perfect world, that's exactly what's supposed
to happen, but in practice, agents that handle car donations
for charity (and buy those ads) can (and usually) come out
far better than everyone else in such a transaction.
Being able to get your charity of choice the best deal
possible, when you donate a car for tax deduction purposes,
will also increase the amount you would be able to subtract
from your income when figuring your taxes. It is to your
advantage to find a charity that can use your vehicle
directly, rather than selling it off. Even if they donate
it to an individual or family in need, you are allowed to
deduct the fair market value of your car, as they would have
paid if you'd sold it to them directly.
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*Tax Tip: Contributions must be made to "qualified"
organizations, including religious, charitable and
educational, as defined by section 501(c)(3) of the Internal
Revenue Code. That's bureaucratic gobbledygook to most of
us. Contributions are frequently received in memory of human
family and friends as well as animal companions. We are a
non-profit charitable organization relying entirely on
donations for support of our programs. Contributions of many
kinds are welcomed.
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There was a loophole in the 1990's and early 'aughts that
caused third-party, for-profit agents to skim as much as 70%
from each vehicle transaction at auction. The reliance upon
wholesale auction was further complicated by the for-profit
reliance of such companies upon economies of scale. Without
volunteer labor, it cost to much to take time finding a
retail sale. Thus, the vast majority of donated cars, for
tax deductions, were forwarded to the wholesale market.
This practice was noticed by independent reporters and the
US General Accounting Office. This meant that there was a
large discrepancy between the amount claimed as "fair market
value." Nearly $700 million in discrepancies were found in
the year 2000, for instance. Since 2005, for those who've
donate cars, tax deductions have been seriously limited and
include additional filing requirements.
The fair market value continues to be the price at which you
could reliably expect to sell your car for, person-to-person
and without any pressure to complete the transaction on
either end. Such a retail sale may be an order of magnitude
higher that that paid at wholesale auction. In the case of
a donated car, tax deductions may not even be worthwhile
unless the return on your donation is increased by
considering its ultimate fate.
And honestly, you don't want to see your $3,000 sedan that
you've spent so much time in be sold for $30 at an auction,
tossed on the back of a truck and shipped to a far-off state
for dismantling. Wouldn't you prefer your car "lived on"
with someone else? It's hard to get rid of a car, but at
least when you donate a car, tax deductions and the
intangible good feeling of donating to someone less
fortunate can ease your car-guilt.
Aside from being environmentally unfriendly when long haul
transport is considered, there is the matter of a very small
sale price. According to the latest guidelines, when you
donate a car to charity, the tax deduction is limited to the
amount it was originally sold for, if the car is sold during
the first two years after you donate it.
After you decide to donate a car, tax deduction
considerations behoove you to do a little calling around and
find a local non-profit organization that can actually use
your car as part of it's IRS-approved, charitable mission.
You will find that very few charities conduct their own car
sales. However, educational operations often sell a
well-refurbished vehicle at charity auctions. Such sales
often command an price even higher than fair-market value,
though you are limited by the extent of your donation rather
than what they did to spiffy it up. Donated cars for tax
deductions are certainly not the most lucrative beak on
one's tax burden (credits are usually worth about 3 times as
much), but they can be very useful. Get the most out of
yours and help some people in your neighborhood.
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Topics: Automotive |
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