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CAR DONATION CURBS - THEY'RE WORKING

May 26, 2005

The enigmatic State 29 forwards an article form the Quad City Times, "Tax law change means fewer vehicles being donated to the Salvation Army"

From the article:

Major James Frye, the administrator of the Salvation Army’s Adult Rehabilitation Center in Davenport, told a news conference that many people are under the erroneous impression they can no longer donate motor vehicles to the agency.
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He emphasized that persons wishing to donate vehicles valued in excess of $500 still may do so. However, they can no longer use the vehicle’s Blue Book value to determine the tax deduction and instead must use the actual price the vehicle is sold for at auction.

Major Frye is correct. Unfortunately for the Army, the donation curbs drastically change the economics of many car donations. Take the example from a GAO study of car donations we discussed last year. The example showed a taxpayer taking a $2,400 deduction for a donated truck sold at auction for $375. Assuming a combined 20% federal and state tax rate for the donor, the donation is worth $480 in saved taxes - so the donor was better off donating the car than selling it.

Now the deduction for the same car would be limited to $375, resulting in a $75 tax savings. Many would-be donors will just sell the car now; assuming they would also sell it for $375, they'd be money ahead to do so.

WHAT TO DO?

I recommend you consider a donate cash or appreciated securities to the Salvation Army. No charity makes better use their resources.

Oh, and just sell the car.

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