Charities And The 2005 Tax Rule Changes
Charities were accepting hundreds of thousands of vehicles a year in donations. Most charities would take the donated vehicle and sell it at auction and then use the proceeds from the sale to fund their charitable endeavors.
The taxpayers who donated the vehicles could take a tax deduction equal to the market value of the vehicle, no matter what the charity used the vehicle for or how much the charity sold the vehicle for.
Some charities, like the Sacramento car donations, even had their own used car sales lots. This was a beneficial situation for both the taxpayer and the charity. However, the tax rule changes of 2005 changed all of this.
The donor can now take a tax deduction of $500, or a deduction equal to the selling price of the vehicle, whichever is greater, and it must be documented. The only way they can deduct the fair market value is if the vehicle is used by the charity in its work, improvements are made to the vehicle or the vehicle is given to a needy individual.
This obviously resulted in a large decrease in the number of donated vehicles, which means a decrease in the number of charitable dollars that various charities have to spend. Charities still accept donations of vehicles, but they don't have nearly as many donors as they used to have.
What can the charity do in this situation? The charity should try to fit itself into the category of the fair market value deduction. Improvements can be made to the donated vehicles though charity sponsored and run vocational training programs. Many people coming out of prison, drug rehabilitation programs or high school need some form of vocational training to make them employable.
This is a role that many charities could fulfill. This wouldn't restore them to their pre-2005 tax rule change position, but it would probably put them in a better position than they are in today in regards to car donations. Now not every charity is in a position to do this, but some could be.
Another way a charity can fit itself into the parameters of the fair market value deduction category is to give the cars to needy individuals, instead of selling the vehicle and using the funds for their charities. The obstacle here is that the vehicle would have to be in good operating condition.
The taxpayers who donated the vehicles could take a tax deduction equal to the market value of the vehicle, no matter what the charity used the vehicle for or how much the charity sold the vehicle for.
Some charities, like the Sacramento car donations, even had their own used car sales lots. This was a beneficial situation for both the taxpayer and the charity. However, the tax rule changes of 2005 changed all of this.
The donor can now take a tax deduction of $500, or a deduction equal to the selling price of the vehicle, whichever is greater, and it must be documented. The only way they can deduct the fair market value is if the vehicle is used by the charity in its work, improvements are made to the vehicle or the vehicle is given to a needy individual.
This obviously resulted in a large decrease in the number of donated vehicles, which means a decrease in the number of charitable dollars that various charities have to spend. Charities still accept donations of vehicles, but they don't have nearly as many donors as they used to have.
What can the charity do in this situation? The charity should try to fit itself into the category of the fair market value deduction. Improvements can be made to the donated vehicles though charity sponsored and run vocational training programs. Many people coming out of prison, drug rehabilitation programs or high school need some form of vocational training to make them employable.
This is a role that many charities could fulfill. This wouldn't restore them to their pre-2005 tax rule change position, but it would probably put them in a better position than they are in today in regards to car donations. Now not every charity is in a position to do this, but some could be.
Another way a charity can fit itself into the parameters of the fair market value deduction category is to give the cars to needy individuals, instead of selling the vehicle and using the funds for their charities. The obstacle here is that the vehicle would have to be in good operating condition.