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Tow away a
tax break: Donate a car to get a deduction
By Suzanne Monson
To avoid the
hassle of selling or towing their lifeless 1989 Ford Tempo last
year — and to earn a tax deduction for their effort —
Sean and Ashley Snow followed a radio commercial's advice, and donated
their car "running or not" to a charity.
Now, the government
is trying to make sure donors such as the Mountlake Terrace couple
don't get taken for a ride.
In 2000, more
than 733,000 Americans donated cars to more than 300 charities and
cut their tax bills by about $654 million.
At least 14,000
vehicles were donated to 18 charities in Washington state last year.
While the state does not track exact figures from these transactions,
the largest vehicles-to-charity auctioneer in the area estimates
the number of donated vehicles has grown by at least 40 percent
over the past three years.
vehicle-donation phenomenon is up significantly because it's an
innovative way for charities to raise funds," says Rebecca
Sherrell, charities program manager for the Washington Secretary
of State Office.
But tax specialists
and government officials believe too many taxpayers are unclear
about how car donations really work — and what it means to
their pocketbook and to their chosen charities. To identify steps
taxpayers should take when donating vehicles to charities —
and look for cases where charities and their fund-raisers aren't
following laws and regulations — Cathleen Berrick, an acting
director with the Homeland Security and Justice Department, is preparing
a report to be released in September for Congress.
she provided in April points out a variety of misleading holes in
the system. For example, some donors are lured by advertisements
that overinflate a donor's sense of their vehicle's worth. That
means the donor may not get the tax deduction they hope for —
or that they may file a tax return with bad figures.
is evidence that not all fund-raisers are above-board," Berrick
believes charities "are trying to do the right thing: raise
money for their cause."
And it does
the only state that tracks such contributions, charities that used
fund-raising companies to assist them with vehicle contributions
and sales made $11.3 million in 2000, according to Berrick.
however, may be surprised to learn their vehicle doesn't provide
much bang for their donation buck. "It's elusive to me why
people don't ask more questions," Sherrell says. "If I'm
a donor, I want to know."
Here's how these
programs often work:
charities pay a donation-processing center to handle advertising
company takes care of vehicle pickup, cleanup and repair and sale.
When non-running cars are involved, this may include breaking it
down for parts.
in condition for resale, the vehicles are auctioned off.
company deducts its costs from the proceeds — and divides
the remaining balance with the charity and donation-processing center.
Depending on the arrangement, charities receive 20 percent to 80
percent of the balance.
bother donors to learn that many legitimate, tax-exempt 501(c)(3)-registered
charities contract with other companies, says Bert Colley, president
of the Washington Council of the Blind, considered one of the pioneers
in cars-for-charity in this region.
groups don't have the overhead to run this kind of program, he explains.
an all-volunteer program," Colley says. "We'd have to
purchase a fleet of a dozen trucks, run maintenance, employ people,
pay out all the Labor and Industry things you have to when you have
a business. That would probably knock it down to 12 to 13 percent
actual net for us."
says, the council receives about 22 percent of the vehicle's sale
price. The money supports scholarships, crisis programs and education
support. Since starting its program in 1998, the council has gone
from a nonprofit group that collected $75,000 in donations to one
that made $270,000 last year. Colley calls the 3,600 vehicles it
collected in 2002 the council's "best year ever."
To Tom Williamson
of Renton, a little money to a charity is better than none at all.
That's why he has donated two vehicles to Washington Council of
the Blind. "I knew some of the work they did, saw the ads in
the newspaper, and I actually did call to see if they were who they
said they were," Williamson says. "They made it painless.
In both cases, I called the number. They asked me a few questions
about the cars — its brand, age, condition — and they
sent me a packet in the mail within five days.
me information on how to calculate the fair market for the tax deduction,"
Williamson says. "But honestly, I just wanted them to be moved."
In Lake Forest
Park, Cindy Wisdom felt compelled to do a little more research when
she and husband Mark opted to donate their running Plymouth Horizon
sedan about 10 years ago.
When she called
toll-free numbers listed in newspaper advertisements, however, Wisdom
says she felt people answering her calls "tap-danced"
around her questions.
out later some of them were not nonprofit and others didn't disclose
that they only got a very small percentage" of her contribution,
That's why the
couple eventually donated their vehicle directly to Salvation Army,
which gave it to a needy family.
don't like the fund-raising part of the system because I don't think
the organization has control over who fund-raises for them,"
Wisdom says. "But as long as they can sell it directly or use
it in some capacity for their programs or clients, I'm fine with
says tax attorney Alisa George of the Seattle office of Dorsey &
Whitney, is one echoed by many well-intentioned taxpayers. But too
many get caught up in "the false assumption that donating to
a charity will give you a better value" for the vehicle, she
When ads say
taxpayers can deduct "to the maximum extent allowed by law
or using (Kelley) Blue
Book value, a lot of people are led to believe they
can use something other than fair-market value," says Alisa
At the Secretary
of State's Office, Sherrell sees some donors making the same mistake.
say you'll get the highest Blue Book value,
but that's not always the case," Sherrell says.
value takes into account not only the year, model and mileage of
the vehicle, says IRS spokeswoman Shawn George (no relation to Alisa
George), but demands in the local market and the vehicle's condition.
As a result,
the IRS says, the fair-market value of a donor's car may be substantially
different from the average price listed in an established used-car
place that some groups are not forthcoming," says Alisa George,
"is if your vehicle is worth more than $5,000. Be cautious:
if it's worth more than that and you try to write it off on your
taxes, you're going to get contacted by the IRS."
explains, donors will need to fill out a special form and pay for
an appraisal "that can cost a few hundred dollars."
As long as charities
and donors follow the rules, says Sherrell, vehicle donations to
charities can be a good thing for both.
ways," she says, "this is no different than giving money
to a charity. Unfortunately, vehicle donation is going to require
more of an effort by the donor."
Source: Seattle Times - Oct 28 7:19 PM - web site: http://seattletimes.nwsource.com/html/businesstechnology/135173780_donate06.html
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