Car donation is the practice of giving away no-longer-wanted automobiles or other vehicles to charitable organizations. In the United States, these donations can provide a tax benefit and have become very popular.
In the United States
Some critics have claimed that car donations are essentially a tax shelter. However, non-profit organizations in the US have come to rely increasingly upon the revenue from car donations. This type of donation has become increasingly widespread; in 2000, 733,000 U.S. taxpayers reduced their taxes by $654 million.
Tax considerations
Although advertised as an easy way to dispose of an old car, donors need to fulfill certain post-donation requirements to qualify for the tax deduction, such as obtaining a written acknowledgment of the car's subsequent sale by the charity, and itemizing tax returns instead of taking the standard deduction.
For vehicles valued at less than $500, the deduction amount comes from the donor's own estimate of the car's value, even if the charity receives less money from its sale. Deductions greater than $500 are limited to the proceeds of selling the vehicle, usually at auction. The U.S Internal Revenue Service advises that starting in 2005:
The rules for determining the amount that a donor may deduct for a charitable contribution of a qualified vehicle, including an automobile, with a claimed value of more than $500 changed at the beginning of 2005 as a result of the American Jobs Creation Act of 2004. In general, that Act limits a donor’s deduction to the amount of the gross proceeds from the charity’s sale of the vehicle.For vehicles valued at over $500, taxpayers are required to attach the charity's written acknowledgment to their tax return.
Benefit to charities
Many charities run donation programs. Some have their own car lots which sell the donated cars but many have their donations processed through auto auction companies. Many processing companies also collect and sell donated cars and distribute the money to a charity the donor indicates. The processing company typically takes a percentage of the sale value of the car, but these programs allow charities without their own facilities or staff dedicated to fund raising to benefit from vehicle donation programs.
Ideally, donors should also investigate how much money from the sale of the car goes to the auction processor and how much actually benefits the charity's programs, as opposed to its administrative overhead.
References
- ^ lifetips.com Car Donation Tips
- ^ cardonors.com Frequently asked questions
- ^ IRS Warns of Questionable Deductions for Donated Vehicles
- ^ IRS Reminds Taxpayers About Requirement of Written Acknowledgment for Donated Cars
- ^ Internal Revenue Service Publication 4303, A Donor's Guide to Vehicle Donations
External links
- Charities see little from car donations, due to high overhead, Hackensack Record , May 10, 2008
- "Are donated autos helping needy kids?", North Jersey Online , January 2008
- George Will, "Charity Should Begin in Congress"
- "Does Charity Car Donation Still Make Sense", Edmonds Online , August 2009
- "USA Today Article on Car Donation"
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