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IRS Car Charity Rules Drives Donations Down

July 14, 2008 · 7 comments

I’m sure that you’ve seen a number of signs and ads that encourage you to donate your vehicle to charity. In our area, they’re plastered all over the place… Do they actually work?

Not so much anymore. In 2004, Congress changed the rules regarding car donations for charity. The rules more or less limited the deduction that you could claim to $500 or the lesser of the car’s fair market value (good) or the actual proceeds from the sale of the car (not so good). The latter has seriously impacted both the number and value of used car donations.

How much of an impact did charities see? The accounting firm of Grant Thornton reports that between tax year 2004 and 2005, the number of car donations valued at more than $500 dropped by approximately 67%. The total value of donations fell more than 80%.

What happened?

The changes in the rules may have made it more appealing for some folks to sell rather than wait to find out the charitable donation value. With the lack of a large deduction as a “sure thing” – the numbers of donations dropped. And the requirement to substantiate the donation by using the value of the sale clearly forced folks to, um, maybe not *fudge* on their returns (not that I’m saying it happened). So a number of lovely cars (perhaps like the one pictured above) that were being donated to charity for “fair market value” were revalued – producing a very different result than before.

But there was good news: despite the reduction in charitable car donations, Americans actually increased the value of overall charitable donations in that same time by a factor of 10%. The study did not specify whether that increase was largely cash or goods. I’m guessing it was heavily stocks and appreciated assets – but that’s just me.

But it does make me wonder… If you donated to charity last year, was it mostly goods, mostly cash or a combination of the two?

{ 7 comments… read them below or add one }

1 Death & Taxes July 15, 2008 at 9:02 am

As I recall, this same phenomenom took place when IRS began requiring Social Security numbers of dependents on returns.

And many, many years ago, there would be people who only reported stock losses, never gains, since Form 1099-B was not issued.

2 Robert D Flach July 15, 2008 at 9:09 am

Kelly-

When the Grant Thornton report states “the number of car donations valued at more than $500 dropped by approximately 67%. The total value of donations fell more than 80%.” are they speaking from the point of view of the charitable deductions claimed on Schedule A or from that of the charities who solicit donations of used vehicles?

Are they saying that taxpayers are claiming smaller deductions or that individuals are donating less vehicles?

The total dollar amount of charitable deductions for donated vehicles claimed would certainly decrease under the new laws. Taxpayers can no longer attempt to get away with deducting the full “blue book” value of a “clunker” that had to be towed away. They are now, in most cases, limited to the sale proceeds of the donated car as reported by the charity on Form 1098-C. This was the intended purpose of the legislation.

I would be interested in learning if there have been a substantial reduction in the number of used cars that are being donated.

While donating a car to charity will result in less dollars in one’s pocket than selling it, it is an easy way of getting rid of an unwanted car. One avoids all the agita and aggravation involved with the private sale of a used automobile.

I would also be interested in learning if the amount of cash contributions to church and charity claimed on Schedule A dropped in 2007 – as a result of the new stricter rules.

TWTP

3 Urbie July 15, 2008 at 9:13 am

This is a good thing. As Flach points out, the bogus book-value donations were a Golden Fleece on the rest of us.

As for myself, when I want to give to a charity, I pull out my checkbook. (I don’t have enough deductions to itemize, either.)

Urb

4 Kelly July 15, 2008 at 9:18 am

Robert -
I think they’re saying both: that the total number of cars donated dropped and the the value of the cars which were donated dropped. Now that the value has to be proved (by sale) rather than agreed upon (as before), I think that fewer folks feel compelled to take advantage of this deduction (read “take advantage” how ever you want).

You can read the GT statement about the study on their website here: http://www.grantthornton.com/portal/site/gtcom/menuitem.550794734a67d883a5f2ba40633841ca/?vgnextoid=d50262de2d02b110VgnVCM1000003a8314acRCRD&vgnextfmt=default

I, too, am interested to see the filing stats for 2007 as a result of the changes to charities – I also want to see what the increased filings meant for IRS in terms of revenue. So far, those full stats have not been made available for 2007.

5 Another Tax Geek July 16, 2008 at 4:29 pm

One of my longstanding pet peeves is seeing ads on buses suggesting big tax savings by donating cars to certain ‘charities’, as it seems wrong for one gov’t agency to make $ advertising how to fleece another gov’t agency. I’m glad to see these scams closed down. Legitimate tax planning is one thing, but these were just bogus deductions.

6 sandrar September 10, 2009 at 2:51 pm

Hi! I was surfing and found your blog post… nice! I love your blog. :) Cheers! Sandra. R.

7 Where to Donate a Car March 22, 2013 at 10:27 pm

Cool. I have been searching the internet for this info.

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