Originally created 12/30/04

Car donations up as tax change looms

ALEXANDRIA, Va. - Charities that raise money through vehicle-donation programs are seeing a small but steady jump in donations ahead of a Jan. 1 change in tax laws that will limit the deductions taxpayers can take for such gifts.

Many charities that rely on such programs say they will retool their programs after the new year to help donors obtain the maximum value for their gift, and are hopeful that the donations will continue.

Under current law, a taxpayer who donates a vehicle is allowed to deduct the fair market value of the car or truck on his tax return.

That has made vehicle donations particularly attractive options, because the fair market value is usually much higher than the value one would get if he chose to trade in his old car at a dealership.

In tax year 2000, about 733,000 taxpayers filed for car-donation deductions, collectively reducing their tax liability by an estimated $654 million, or $892 each, according to a November 2003 audit by the General Accounting Office that provided the impetus for the tax-law changes.

Under the changes to take effect in 2005, a taxpayer can only deduct the amount that a charity receives when it sells the vehicle. (Taxpayers may still deduct the fair market value of a vehicle worth $500 or less.) When charities sell the vehicles through wholesalers or auction lots, they may only receive a fraction of a vehicle's fair market value, severely limiting a taxpayer's deduction.

As a result, charities say they are seeing an increase in vehicle donations as the new year approaches.

Jim Hartman, director of the vehicle-donation program for the Alexandria-based Volunteers of America, estimated that donations are running 8 percent to 9 percent ahead of last year.

Melwood, a charity in Upper Marlboro, Md., that heavily relies on car donations to provide job training and other services to the disabled in the Washington, D.C., area, also reported an increase in donations.

The spike might be larger if the charities were advertising the upcoming tax change. But Hartman said his organization does not want to create the impression that the vehicle-donation deduction is ending.

"We want people to continue to donate next year," Hartman said. "We want everybody to know that we'll be open for business on Jan. 2, and that the donations are still very much in need."

Hartman said the charity plans a variety of changes in the program to ensure the vehicles are sold at top dollar, providing maximum value for the charity and the taxpayer. In some cases, they might work with retail lots instead of wholesalers, or sell cars on the auction site eBay, or make repairs to a car before selling it.

Melwood is also revamping its program along similar lines, and is considering hiring mechanics to get cars in top shape before selling them, said Don Pollock, Melwood's vice president in charge of the car-donation program.

"We believe this can be a good, viable program in the future," said Pollock, whose organization receives more than $1 million a year, or 15 percent of its annual revenues, from car donations. "We were a good cause before and we still are now."

Pollock said the company has conducted phone surveys in which 80 percent of respondents said they would still make donations even if they did not receive as large of a tax deduction, though he acknowledged that donors' intent to contribute can be an unreliable way to predict actual donations.

At Volunteers of America, which nets $10 million of its $800 million annual budget through vehicle donations, Hartman said some surveys indicate they might see a reduction of up to 50 percent.

On the Net:

Volunteers of America: www.carshelpingpeople.org


GAO Audit: http://www.gao.gov/new.items/d0473.pdf


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