Car Donation Scams - Jewish Journal

SUSAN TOMPOR: Tighter rules for donating vehicles loom

BY SUSAN TOMPOR
FREE PRESS COLUMNIST

December 15, 2004

The quick-and-easy tax break for car donations will soon be roadkill.

Beginning Jan. 1, it's going to be far less lucrative for taxpayers to donate their old cars, trucks and boats to a qualified charity in order to take a tax deduction. So you might want to be even more charitable within, say, the next 16 days.

"If I was thinking of donating a car in the immediate future, I'd try to do it this year. And I wouldn't get too greedy," said William Massey, senior tax analyst at RIA, a New York-based provider of tax information.

Keep in mind the word "greedy." Internal Revenue Service Commissioner Mark Everson has warned taxpayers not to claim an inflated value this year just because the rules will be tougher next year.

I first warned readers last February to expect a deadly curve ahead for car donations. And this fall, Congress changed the law, as part of the Jobs Creation Act of 2004, to make it far tougher to get a fat deduction in 2005 and after.

Many charities just weren't getting anything close to what people were claiming for tax deductions.

The General Accounting Office, which released a report last year, found shocking numbers when it examined a sample of 54 vehicle donations.

The former owner of a 1991 Ford Crown Victoria claimed a value of $3,100 on a tax return. The same Crown Vic later sold for $300. The charity ended up with even less money after advertising and other costs.

The more-generous car donation rules apply now through Dec. 31. So if you itemize on your taxes, you legally can deduct the "fair market value" of a car that you donate in 2004. This year, it won't matter how much money the charity actually gets. Next year, you won't be so lucky.

Still, we're talking about a reasonable price here, given a car's quirks.

So if your 1997 Saturn SW2 Wagon needs a new transmission, do not try to take a $4,000 tax write-off. Let's get real. If you could have gotten $4,000 for that junker, you would have sold it.

To find a fair price, go to spots like the Web site for the Kelley Blue Book -- www.kbb.com -- and look for the private party value. The Web site also will help you plug in various extras, like power seats or a moonroof.

And the tax experts say you want to back up your deduction -- especially now.

Print out any online reports. Get a letter from the charity or its agent to confirm that donation. If the value is more than $500, you'll need to file federal tax Form 8283. Take some pictures of that car before you donate it. And Massey said hold onto maintenance records in your tax file.

You must get an appraisal this year if you value your car or truck donation at more than $5,000.

Yet paying an outsider for an appraisal could be a good idea in other cases, too, say if you're claiming a $4,000 deduction. An appraisal would give you more clout with the IRS if you faced an audit.

While you're at it, check out the charity, too. The IRS says you can call 877-829-5500 to check out an organization.

Next year, there's far less wiggle room in what you'd be able to deduct for a car's value. The reporting of such donations will get tougher next year, too.

Ken Hess, who handles car donations for the Salvation Army and the Disabled American Veterans in metro Detroit, said next year charities will be required to take the Social Security numbers of those who donate cars.

And if you donate a car on Jan. 1 and after, you're going to be disappointed if you're hoping to claim a value of more than $500.

Beginning next year, the charity will have up to 30 days after it sells the car to tell you what the charity got for that car. The IRS said if the taxpayer claims a value that exceeds $500 and the vehicle is sold by the charity, the taxpayer could only deduct the gross proceeds from the sale.

And guess what? The charity is not going to tell you that old Saturn sold for anywhere near $3,000.

Who knows what they'll get? But it might be $1,000 or less.

Brian Krupa, car donation manager for Military Order of the Purple Heart in Southfield, said the average car donated to his veterans-oriented charity ends up selling for $500 to $600.

Remember, donated cars are often sold at auction where they fetch less than at a car lot.

So if your car sells at auction for $600, you'd be able to deduct only $600 -- even if the Kelley Blue Book says that make and model could be worth $3,000.

Or here's another option: If the charity uses the car for a significant time, say to deliver meals, then the donor would be entitled to claim the fair market value next year and afterward. You'd need proof that the car was being used for charitable work.

"Some people are suggesting that under this law, you'll be better off selling the vehicle yourself," said Mark Luscombe, principal analyst for tax publisher CCH Inc. in Riverwoods, Ill.

You might be. Of course, if you're really charitable, you could sell the car and give that money to charity. Just back it up with the right paperwork.

Contact SUSAN TOMPOR at 313-222-8876 or tompor@freepress.com.