To more than 4,000 of the United States’ largest charities, donated cars can be a major source of income.
To lawmakers such as Sen. Charles Grassley, R-Iowa, they represent a widely abused income tax loophole.
Charities want things to stay as they are, with hundreds of thousands of donors each year able to deduct the “fair market” value of the donated car — in essence the amount the car would fetch in a private-party sale.
But earlier this year, Grassley, who chairs the Senate’s Finance Committee, got his way and, effective with donations made after Jan. 1, the tax law will change so that donors can deduct no more than $500 or what the car actually fetches at an auction, where charities often sell the cars. That amount is usually about half the fair market value, says spokeswoman Robyn Eckhard of the Kelley Blue Book.
The change, Grassley said on his Web site, “ends the shady practice of a donor giving a junker car to charity and claiming thousands of dollars for it as a deduction on his income tax.” And, he said, “The reforms will place no additional burden on the donor, will not reduce the amount going to charities from a donated car by a dime and will benefit all taxpayers by ending this abuse.”
Charities disagree — to say the least.
“This legislation will be a huge disincentive for donating their vehicles,” said a statement from the Volunteers of America, a nonprofit group based in Virginia that provides help for youth, abused and neglected children, homeless individuals and families, the elderly and people with disabilities. The group gets about 80,000 donated cars a year and nets more than $10 million from them.
Ron Field, the group’s vice president for public policy, said the change will make it more financially attractive for many prospective car donors to sell the cars — especially the late- model cream puffs — rather than donate them for reduced write-off. “Therein lies our problem,” he said. “We expect to lose about half of our (auto donation) income because most of our income comes from the better cars.”
At North Shore Animal League in Port Washington, N.Y., Gene Gallagher, director of major gifts, said car donations total about $30,000 or $40,000 a year and that, while accounting for a small percentage of the $24 million in annual contributions to the group, it’s money that’s needed. “It saves hundreds of dogs and cats and that’s critical to our missions. It’s what we’re all about,” Gallagher said.
Bob Glasser of Port Washington said that, had the new rules been in effect two years ago, he probably would have thought twice about donating an 8-year-old 7 Series BMW that he figures was worth more than $7,000 despite a major engine defect. “I probably could have found a junkyard that would have given me more,” said Glasser, an accountant.
Some recent donors, though, said that, even if the deductions are smaller, donations remain an easy way to get rid of a clunker. One is Bank of New York vice president Christine Tamney of North Babylon, who, with her husband, donated a 1991 Oldsmobile Bravada sport utility vehicle with about 120,000 miles on its odometer.