May 23, 2008
IRS Finds Huge Drop in Car Donations Following 2005 Law Change
By Grant Williams
A new government report shows that a 2005 federal law aimed at stopping donors from inflating the value of gifts of used cars has had a big effect.
In 2005 the number of automobile donations declined 67 percent from the previous year, from about 900,000 in 2004 to 297,000 in 2005.
The Internal Revenue Service said the amount of money that donors claimed for these gifts dropped by more than 80 percent between the two years, from $2.4-billion in 2004 to $470-million in 2005.
Before January 1, 2005, donors could claim a tax break equal to the fair market value of a donated vehicle. After that date, donors could generally deduct only the amount for which the charity later sold the vehicle.
Congress changed the law for donations of cars because the government identified examples of large discrepancies between the market value claimed by donors and the actual sales price.
The current law has three exceptions. A donor may continue to deduct the fair market value of a vehicle if the charity uses the vehicle before selling it, fixes it up before selling it, or gives it (or sells it at a cut rate) to a needy individual.
The IRS report noted that its new statistics may overstate the overall effect of the change in law because donors of cars with little value do not report such gifts on tax returns and the IRS thus cannot count them.
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Any information on 2006 and 2007? I’ve been told that there was a rise in donations late in 2006 but a drop late last year.
— Greg Wright May 27, 02:23 PM #
Hi Greg:
The story was based on the latest figures available from the IRS. Those figures were released on Friday. The IRS hasn’t yet processed the numbers for 2006 or 2007 — but we’ll be watching.
— Peter Panepento May 27, 02:43 PM #
Thanks Peter.
I manage our campaign and have been on the lookout for news regarding vehicle donations. There’s not much out there, so I was really interested to see what might appear in the Chronicle. The IRS information is interesting, but we’ve already seen the effect from the change in tax law in our donations.
The number of our vehicle donations dropped dramatically in 2005, but rose sharply in 2006 and then dropped again last year and are down in the begining of this year as well.
I’ve been told that the rise in scrap metal prices meant more income from vehicles that didn’t run, which may explain some of the post-2005 rise. Also, I’ve seen some reports this year about industry forecasts for new auto sales which indicate more people are holding on to their cars and so (I imagine) fewer are available for donation.
Please do keep an eye out for reporting about the post-2005 environment for vehicle donations. It would be of great interest to see reporting about industry trends and forecasts. Should the Chronicle be interested in undertaking such an article, national vendors such as VDACs and Car Program would be good sources of donation trends and analysis.
Thanks.
Greg
— Greg Wright May 27, 04:55 PM #
Greg:
Thanks for the information. We’ll be sure to keep our eye on it. It is certainly of interest to the nonprofit community.
— Peter Panepento May 27, 11:33 PM #