Jewish World Review
http://www.jewishworldreview.com | (KRT) Charities that depend on vehicle donations to support their programs have a two-part message for people considering donating a car to a worthy cause: "please" and "hurry."
On Jan. 1, changes in tax law will decrease the financial benefits of many vehicle donations.
Donors currently can deduct the fair market price of their vehicle from their taxes, often to the tune of thousands of dollars.
Starting next year, the Internal Revenue Service will allow donors to deduct only the price the charity receives for the sale of the vehicle if it's more than $500.
Some charities worry that could mean fewer donations.
John Farnam of Vehicles for Charity, a part of the Association of Retarded Citizens, said some charities make as little as $125 on cars. His organization averages $600 per vehicle at wholesale auctions.
"This forces us to get creative to get higher sales prices," Farnam said. "It may force us to set higher minimum sales prices, (to run) a private retail lot and broaden our disposition methods for vehicles."
He said donors generally fall into two categories. The minority are people who donate a good vehicle that runs. Most people just want a free towing service to remove a junker from their property.
The first category includes donors who are going to take a hit on this, Farnam said, referring to the new tax law.
People who just need a tow will likely continue to donate despite the lower tax deduction, but Farnam fears those with decent cars who could potentially sell or trade in their vehicles for $2,000 or more will no longer donate.
"We're anticipating that some of our better vehicles will end up being sold privately," Farnam said.
Under the new IRS rules, if the claimed value of the donated vehicle, boat or plane is more than $500 and the vehicle is sold by the recipient charity the taxpayer can only claim the gross proceeds from the sale. If the item sells for $500 or less, the charity is not required to notify the donor, who can then claim up to a $500 deduction.
The new rules require the charity to provide the donor with acknowledgment of the sale within 30 days of the contribution. If the charity uses or improves the vehicle, the donor can usually deduct the fair market value.
Coming up with that value requires a little work on the donor's part, said IRS spokeswoman Jean Carl.
"The (Kelley) Blue Book is just a guide to get you started," Carl said. "Usually used car dealers who do trade-ins are excellent sources for giving you a good estimate on how it's valued."
People can also turn to the Internet for values, Carl said, but they need to keep a paper trail in case they're ever audited. The IRS also offers a vehicle valuation guide on its Web site, www.irs.gov. For any vehicle valued at more than $5,000, a certified appraisal is required, she said.
Tax breaks are not the only reason people donate vehicles.
Cheryl Rasmussen, who recently donated her 1991 Mazda MPV to Goodwill Industries of Colorado Springs, Colo., was more concerned with giving back to the community than receiving a break from Uncle Sam.
"I really never gave much thought to the value of the write-off on it," Rasmussen said. "I absolutely loved having it. It took my kids with their friends up skiing, it took us on family vacations, it took us everywhere we needed to go."
Rather than pay $300 to replace the serpentine belt that blew and go through the hassle of selling the vehicle herself or trading it in, Rasmussen and her husband, Peter, donated the truck to Goodwill.
"Hopefully, it will provide some good memories for another family," she said.
Goodwill and other charities collect such cars to resell for cash, either as low-cost, wholesale vehicles or for parts. But if potential donors can no longer expect a significant tax break, they may opt for private sales or dealer trade-ins instead.
Rasmussen thinks generous people will continue to donate.
Laura Marth, public relations specialist for Goodwill Industries of Colorado Springs, hopes Rasmussen is right.
Goodwill makes about $600,000 a year through its car donation program. About 130 vehicles are donated monthly, bringing the charity an average sale price of $426, she said.
"Obviously we don't want it to affect our donor base at all, but we just kind of have to wait and see what happens," Marth said. "We are a little leery on how this is going to affect us for next year."
A guide to donating cars to charity
Here is a basic guide to donating your vehicle to charity.
-- Make sure the organization is qualified - Go to www.irs.gov to verify the organization is a true nonprofit by searching Publication 78. You can also find Publication 78 in most public libraries, or call IRS customer service at 1-877-829-5500. Be sure you have the charity's correct name and headquarters location if possible. But churches, synagogues, temples, mosques and governments aren't necessarily listed because they don't have to apply for the status. Donations to these entities are also tax deductible.
-- Itemize your return - Many taxpayers can't deduct a car donation because they don't itemize their deductions. Just over one-third of taxpayers itemized their deductions in 2001. Taxpayers generally base the decision to itemize by whether their total itemized deductions are greater than the standard deduction ($4,850 for single; $9,700 for married filing jointly).
-- Calculate the fair market value - The Internet, Kelley Blue Book and used car dealers are great resources for determining the value of a vehicle. Two IRS documents will also help you value your donation: publication 526, Charitable Deductions, and publication 561, "Determining the Value of Donated Property," provide detailed instructions and are available on the web site.
-- Document the Charitable Contribution Deduction - For vehicle donations, taxpayers must document the car donation and its fair market value. Recordkeeping requirements are comprehensive and vary depending on the amount of the contribution and the total amount of the charitable deduction. IRS Publication 526 details requirements for the types of receipts taxpayers must obtain and the forms they must file.
--When in doubt, check with the officials - You can call the IRS at 1-800-829-1040, or for TTY/TDD help, call 1-800-829-4059. IRS forms and publications are also available on the web site. If you think you may be the victim of fraud, contact your state attorney general's office.
-- Source: Internal Revenue Service
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