Saturday, May 24, 2008

Decrease in Car Donations

The Chronicle on Philanthropy notes that a recently released IRS report shows a significant decrease - 80% - in deductions claimed for car donations in 2005, the year more restrictive rules on deductibility went into effect. 

Prior to 2005 donors could take as a deduction the fair market value of the car.  The IRS worried about inflated values, and the worry appears to be borne out by the decrease in claimed deductions.  Under the new rules, the donor can deduct only the amount the charity receives when it sells the car - the true fair market value.  The IRS report shows a drop from $2.4 billion in 2004 to $470 million in 2005 in deductions claimed between 2004 and 2005.  The report does not indicate whether the drop in value also reflects a decrease in cars donated.  Many people may not claim the deduction and those that do may simply claim the more appropriate amount, so the number of cars in charities' hands probably did not drop as much as the 80% decline might suggest on first glance.

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