Fair Market Value

Car donation scams almost invariably mislead their donors about the deduction they can take.

The implication of many so called “charity car” promotions has been “fair market value always equals full market value.”  The come-ons for car donation programs often say that people who donate cars will get more cash (via the tax write-off) for their cars by donating them than they would if they sold the car themselves.

The come-ons also emphasize that the process is virtually hassle-free. To many, donating an unwanted vehicle sounds like a great alternative to getting stuck with a low trade-in value when buying a new car or trying to sell the unwanted vehicle themselves.

As vehicle donations have become increasingly popular, for-profit businesses have begun to solicit donations for charities, representing the latter for a flat rate or a percentage of the proceeds. In other cases, arrangements have been made in which the businesses keep over half the money, or the charity only receives a flat fee.

However, the tax deduction only applies when the donation actually goes to charity, not to a for-profit business. Violations are subject to a $1,000 fine per transaction for all parties.

For a complete rundown of how to determine "Fair Market Value" see:

IRS Publication 561 Determining the Value of Donated Property

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