BMW USED CARS

All Car Donation Programs Are Not Created Equal
August 2004

Scenario A: It's got four wheels and an engine. Sometimes it even runs. But the mechanic's estimate is more than you want to pay, so it's time to get rid of the old clunker in your driveway. A 501(c)(3) public charity you like will take it off your hands. You'll dispose of your car, support a favorite charity, and get a nice income-tax deduction. It's the best of all possible worlds—isn't it?

Scenario B: Your 501(c)(3) organization accepts the donation of a used car, turns it over to a broker to sell, and receives a portion of the proceeds. Your nonprofit receives some much-needed cash, the donor gets a deduction, and the broker makes some money. It's a win-win-win situation—right?

In these two cases, yes. But vehicle donations to charity don't always work out that way. To clarify the situation, on June 29 the IRS issued two new publications on the topic, one for donors and one for charities.

Car donation is the practice of giving away no-longer-wanted cars to charity organizations. In the United States, charitable donations provide a tax benefit; as such, this type of giving has become very popular. For values less than $500, the value of the tax deduction comes from the donor's own estimate of the car's value, even if the charity receives less money from actually selling the car. Deductions for donations over this amount are limited to the sale amount of the vehicle (usually at auction). Some critics have claimed that this is essentially a tax shelter. However, non-profit organizations in the US have come to rely increasingly upon the revenue from car donations. This type of donation has become increasingly widespread in the U.S.; in 2000, 733,000 taxpayers reduced their taxes by $654 million.