Tax News

CCH (cch.taxgroup.com) reports:

  Automobile donations by taxpayers have "plummeted" since enactment of the American Jobs Creation Act of 2004 (2004 Jobs Act) (P.L. 108-357), said Mel Schwarz of Grant Thornton's National Tax Office in Washington, D.C. told CCH on July 21. The 2004 Jobs Act and subsequent IRS regulations significantly tightened the requirements for deducting the value of a vehicle donated to charity and seem to have discouraged individual donations of automobiles. Between tax years 2004 and 2005, automobile donations of more than $500 dropped by two-thirds, according to Grant Thornton's research.

2004 Jobs Act

  Before the 2004 Jobs Act, many individuals used their vehicle's "Blue Book" value as a reasonable starting point, Schwarz noted. The new rules generally limit vehicle donations over $500 to either the actual proceeds from the sale of the vehicle by the charity or the vehicle's fair market value, whichever is less. The exact amount depends on whether the charity sells the vehicle without any significant intervening use or material improvement or if the charity makes a significant intervening use of or material improvement to the vehicle.

Drop in Donations

  In 2004, more than 900,000 returns claimed deductions for donated automobiles. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims, Grant Thornton found. "Donations fell 67 percent," Schwarz noted.

  The total amount deducted for all car donations declined from $2.4 billion in 2004 to just one half of a billion dollars the following year, Grant Thornton found. The decline represents a decrease of over 80 percent.

Congress's Intent

  The decline in donations is probably not what Congress intended, Schwarz observed. "Congress was concerned that people were inflating the value of donated used cars under the old system. The hope was that charities would still get the same number of cars they could auction for the same amount of money and the only change would be the elimination of excess charitable deductions. That hope was clearly not realized."

  By George L. Yaksick, Jr., CCH News Staff