Federal tax deduction formula for vehicle donors now more complex

By Matt Busse / 385-5533
March 4, 2005

Recent changes in tax laws regarding how much of a federal tax deduction a vehicle donor can claim have had varying effects on charities.

Some charities say the changes haven't deterred people from donating vehicles.

Others say the changes have, and they say some media reports might be responsible for donations dropping off.

"The message we would like to get out is, 'Hey, it's still here, it's still great,'" said Harvard "Pete" Palmer Jr., vice president and co-founder of Vehicle Donation Processing Center.

The Vehicle Donation Processing Center collects donated cars for about 325 charities, including the Virginia Association of the Blind and Operation Teddycare.

Before the tax law's changes took effect Jan. 1, donors could deduct a vehicle's fair market value. If a vehicle was worth $3,200, a donor could deduct $3,200.

Now, how much they can deduct depends on several factors.

To claim the deduction, taxpayers must first itemize their federal returns.

Then, for a vehicle worth $500 or less, a donor can deduct up to $500.

For a vehicle worth between $500 and $5,000, a donor can deduct the amount a charity sells it for. Charities typically sell donated vehicles at auctions.

For vehicles worth more than $5,000, a donor must have it appraised and attach the appraisal to a tax return.

However, if a charity uses a vehicle in its day-to-day operations and doesn't sell it, a donor can deduct the vehicle's fair market value.

Art Walker, vice president of operations for the National Kidney Foundation of the Virginias, said his group saw a spike in car donations in December after the tax-law changes were widely publicized.

"We had such a rush of donations in December," Walker said.

The foundation received about 1,600 donated cars that month, compared to 1,200 or 1,300 typically.

Whether that spike in donations late last year will mean a drop this year remains to be seen, Walker said.

"Our guess is it will be down compared to the previous year," he said. "A lot of the supply got donated at the end of the year, more so than normal."

Vehicle donations make up about 65 percent of the National Kidney Foundation's budgets.

Calls to the Vehicle Donation Processing Center from people wanting to donate cars have dropped 27 percent this year for the period from Jan. 1 to Feb. 10, Palmer said.

Vehicle donations comprise up to 85 percent of the budgets of some of the groups the Vehicle Donation Processing Center represents.

Not every charity has reported decreases in vehicle donations.

Donations to Cars4charities thus far this year are up about 50 percent from the same period last year, the charity said in a statement.

"Even with the change in the tax law, our donors still say they are getting a valuable tax deduction," Karen Campese, the charity's CEO, said in the statement.

In a November interview, Jill Gerber, press secretary for the Senate Finance Committee, said the intent behind changing the tax law was to combat people claiming that low-value vehicles were worth more than they actually were.

But some television or newspaper reports that came out late last year might have given people the impression that they could no longer donate vehicles, Palmer said.

Palmer said the ends of many media reports contained accurate information about the tax-law changes, but often people simply focused on headlines and sound bites that sent messages like "car donations on the skids."

"We believe what's really killing us is that misinformation," he said.

Walker echoed Palmer's statements, saying that he thought about half the news reports on the tax law changes were misleading.

"That, we think, is probably going to cause some people to try and sell vehicles when they don't have to," he said. "We want to encourage people to donate. The need is still there."

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