When my aging Nissan Sentra started to need several hundred dollars worth of repairs every few months, once considered the donation of a blue sedan confidence charity. I knew of several pet charities are appreciated. In addition, the donation of a car seems a lot easier to sell it. No fixing up. No phone calls. No Tom, Dick and Harriet calling at my door – or walk up to me one Sunday morning as I waited for Godot.

The biggest incentive, however, came from the tax. While the IRS allows donors to deduct the “fair market value” of the car donation from your taxes. Therefore, the donation of Nissan, whose market value was about $ 2400, versus $ 792 for my tax return (assuming a 33 percent tax bracket). Each year, more than a million Americans donated their cars like this.

Too good to be true
Unfortunately, either through ignorance, confusion or greed, a substantial percentage of car donors were deducting all the “suggested retail price” – which would be a dealer for resale in the trade — rather than the fair market value. This is much more than the IRS had intended, costing millions in lost government revenue.

The charity does not do much, either. The majority of donated vehicles were sold by the charity in exchange for a pittance at auction, and the intermediaries who administer programs on behalf of the charity had a large share of the meager benefits.

Thus, in 2005, the IRS has changed the rule. Since then, if your car is valued at over $ 500, the deduction is limited to the charity’s actual selling price. The donor must attach a statement of the sale tax in order to receive the deduction. (The charity is required to provide a statement within 30 days.) You do not have a right to know the amount of the deduction before donating your car.

That leaves the majority of donors in the dark – and may leave some companies and charities in the red.

Either by the government = bad for business?
Taron Reeves owns America’s Car Donation Charities Center, one of the many commercial fundraisers that give a percentage of profits to its nonprofit members. Reeves donated by companies fell by 30-35 percent after the new law came into force. What is worse, their total profits were reduced by 50 percent, as owners of vehicles with higher value “- something over $ 2,000 – $ 3,000 – were out in droves.

Since the average car car donation charity that is now the Center for the charity is worth only $ 250 – $ 300, Reeves has had to cut their overheads and costs to maintain their business without profit. A native of Texas, Reeves said that he now has to work a little smarter and a little faster than usually, however, remains undaunted.

“There are a lot of cars out there,” he said. “I find myself in a meeting at someone’s yard, waiting to be donated and say, ‘That’s a $ 50 bill just flapping in the wind there.”

“To the extent that we can accommodate the donor and not lose money for charity, we’re going to do it.”

As one door closes, another opens
As the biggest loss for consumers is for those with the highest value of used cars, should abandon the hope of donating? Not at all. Although the IRS has closed the gap in the law, there is still a way to deduct the full market value of your vehicle: If the charity uses the vehicle to follow its own specific purpose.

For example, the nonprofit 1-800-Charity Cars renew and provides donated cars directly to the economically disadvantaged. Its goal is to help the needy and welfare-dependent to be stable, self-sufficient, tax citizens.

“We’ve been going gangbusters,” said executive director Brian Menzies. “We’ve given away free cars to people in almost all states, including Alaska and Hawaii.”

In contrast to the charity whose mission does not involve real cars, car charity has seen a 50 percent increase in donations this year. Because the owners of higher value of used cars are now going into its organization, Menzies said: “The quality of cars has been phenomenal.” Cars that are not rolling auction will pay for the repair of the cars that go to families who are struggling.

Note that the fair market value, in this case must be determined by the donor. The Government noted that “the fair market value of the taxpayer’s car may be substantially different from the” Blue Book “value.” Lower, ie. Edmunds’ TMV Vehiculos evaluator’s report provides an accurate assessment of what is selling a used car in your neighborhood. This can be used at tax time and in the event of an audit.

Doing the math
So if you have a car with a market value of $ 1000 you are looking for the download, you have four options.

1. Donate to a charity that has 501 (c) (3) tax exemption with the IRS. The letter received from the State the amount that was sold by – much less than market value. They say it is sold at auction for $ 250. There is a special rule might apply if the car was sold for less than $ 500. If you receive a written acknowledgment from the charity that meets the requirements of the IRS, you can claim a deduction of the fair market value or $ 500, whichever is less. We recommend that the IRS donor information guide for details.

2. In trade on a new car – but not much. Dealers are never very happy to get people from the old beater cars as trade-ins, but a latest model of Japanese luxury cars, or could get a reasonable price. However, dealers often use their trade Jiggle in the terms of your new car purchase or lease, it must be very skilled to untapped. (If you go this route, be sure to see its trade in used cars in the first place.) If traded on that $ 1,000 car, which will be lucky to get $ 700.

3. Donate to an organization such as the Charity Cars, which uses the car as part of his case said. This allows you to deduct the car using Edmunds.com ’s True ValueSM market. Using the 33-percent tax bracket once again, that means $ 1,000 x 33% = $ 330 in your pocket.

4. Private for sale on its full market value of $ 1,000. Although it is generally the most difficult, this is what we recommend. The advent of Internet sites such as Autotrader and eBay can make it much easier, although this depends if your car is in demand.

A word of warning: When it comes to tax deductions, no more than your tax bracket. For example, you can not take advantage of a donation in all cars unless you itemize your taxes. Other factors include your income, the need for deductions, and the value of the car. A certified accountant can help you decide if the donation is in your best interest, or you can call the IRS at (800) 829-1040.

So what did I do? Edmunds to be the expert user, I knew it would be better served by selling myself. Doing so is a little strange and uncomfortable. I literally became a “used car salesman” for a couple of weeks as illustrated car features and benefits to total foreigners.

In the end, however, who received $ 2,300 for the car, and I did not have to worry about special IRS forms. I had enough money to reward my efforts and left far more to the charity of my choice – much more than they would have received had donated the car directly. Like so many other things in life, the least desirable option is often more profitable.

Tags: 501(c), Charitable organization, Donation, Edmunds.com, Internal Revenue Service, Nissan Sentra, Tax deduction, Tax exemption

This entry was posted on Wednesday, June 10th, 2009 at 3:35 pm and is filed under Car Donating Info. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.