Wednesday, June 25, 2008

Automobile Donations to Charities that Use the Car - Not Really So Bad

Last month we blogged about a recently released IRS report that notes that while number of donations of automobiles to charities has decreased since the more restrictive rules were implemented in 2005 (by 60%), the dollar amount of these donations has dropped even more (by 80%).  As a result of the legal change that took effect in 2005, if the donors claims more than a $500 deduction the donor is limited to the actual sales price that the charity receives from the sale of the car.  Before 2005, donors could get fair market value.  Even after 2005, a donor can still get fair market value if the charity gives the car to a needy person, uses it itself, or renovates and sells the car.

Professor Linda Beale remarks on A Taxing Matter blog that "[t]he latter two exceptions don't appear reasonable--hard to see why the donor should get a bigger donation for cars that the charity uses or renovates and sells."  I was struck by this when I first read it and thought that maybe she's right.  But I recently discovered one "uses it itself" exception circumstance that seems quite reasonable - donating an auto to your local nonprofit (often volunteer) fire department.  I checked with my local fire department and they told me that they accept any vehicle (working or not) and destroy it in fire training exercises.  Seems pretty reasonable to me.  Are there other circumstances?


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