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March 26, 2004

If you have been looking for a good reason to dispose of the fine motor vehicle on blocks in your front yard, the Senate Finance Committee may have just provided it.

A provision in the "must-pass" bill repealing the "extraterritorial income exclusion" (ETI) would add a new restriction to the deduction available for charitable donations of used vehicles. If the charity sold the donated vehicle, the provision would limit the deduction to the car sales price.

Under current law, the proceeds received by the car are not linked to the donation. Instead taxpayers can deduct the "fair market value" of the car. This deduction is typically determined using "Blue Book" values. A recent General Accounting Office study determined that the cars typically sell for far below the claimed value, and often the charities only receive a fraction of the actual sales price after selling expenses.

The GAO study followed one 1983 truck through the process. The donor claimed a $2,400 deduction. The vehicle sold at auction for $375; after expenses, the charity received $31.50.

Car donation.gif

The new provisions would take effect for donations after June 30. The ETI repeal, also known as the "JOBS" bill, is tied up in the Senate, but because $4 billion of trade sanctions will continue on American goods until it is enacted, it seems likely to pass.


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