There are many events that encourage the IRS to act and chief among them is people taking advantage of charity deductions.  In the case of durable goods or non-cash donations to charity, reports issued in late 2003 found that over half a billion dollars was slipping through the IRS’s proverbial fingertips.  In an effort to stem this revenue hemorrhaging, new rules took effect in 2005, largely due to just a single scathing report from the US General Accounting Office (GAO) in late 2003.

Of course, this report was the first of its kind to actually focus exclusively on automobile and vehicle donations to charity.  And what it found shocked the IRS and the Senate Finance Committee that it was delivered to.  Indeed, an immediate response was garnered from the IRS to publicly concur with the recommendations of the report that called for rule changes and greater oversight of vehicle donations to charity.

It is interesting to note the the timing of this report was just a year after an influential and scathing article on this very topic appeared in the Washington Post.  Though the increased prevalence of ads cajoling people to donate their car to charity certainly merited inspection by someone.  Whether an employee of the GAO saw this, or a constituent of one of the Senators on the Finance Committee is unknown.

Regardless, the report, entitled, “Vehicle Donations: Benefits to Charities and Donors, but Limited Program Oversight,” found some glaring problems with the system of automotive donations to charity, even when taxpayers followed the letter of the law when determining their allowable deduction. 

For instance, the average deductible represented only between 1-5% of the actual monies accepted by the charity in most cases.  The rest of this money was lost by selling the vehicle as quickly as possible on the wholesale market, often taking in less than 10% of the automobile’s value according to even conservative estimates by valuation services such as the Kelly Blue Book.

Of course, part of the confusion arises from the generally unsatisfactory condition of many donations – a condition that was found to be exasperated by offers of free towing of any vehicle with a free and clear title.  In fact, most donation organizations (whether operating as a profitable business or non-profit charity) will tow cars as a matter of course, whether they run or not.  In contrast, the Kelly Blue Book rating of “poor” still requires the car to move under its own power.

The very prevalent use of third-party donation organizations that represented various charity organizations (sometimes several) caused a great deal of concern, too.  It was found that on average, between 60-70% of the relatively paltry revenues from wholesale market sales was then eaten up by the overhead of the facilitating organization that was operated as a for-profit business enterprise over 95% of the time.

Even more disconcerting, many of these third party organizations were found to be engaging in fraudulent or at least shoddy bookkeeping – often lumping all their expenses for a given sale into a single unlikely category.  Sometimes, it was found that in many cases the charity that some such companies represented wasn’t even legitimate, making the practice of taking a deduction from such a gift to “charity” technically illegal.

That said, despite the large number of advertisements found on TV, radio and websites, less than a single percent of tax returns filed in 2000 included a vehicle donation to charity.  Of course, in a country as large as the United States, that still means that over 700,000 tax returns had itemized deductions for vehicle donations to charity  By claiming the “fair market value” of the cars in question rather than the actual sale price, just about each and every one of the nearly three-quarters of a million returns deducted a value that was, on average, 90% higher than the actual revenues received at auction.

It comes as no surprise to anyone that the IRS acted the very next year, especially given the betrayal of public trust that predatory for-profit enterprises represented when invoking the name of charity to solicit donations from unsuspecting Americans who were just trying to do the right thing.

When the US General Accounting Office (GAO) issued its landmark report on charitable vehicle donation to the Senate Committee on Finance in November of 2003, over 4,000 distinct charity and non-profit organizations (NPOs) were accepting vehicular donations.  Though most of these used third-party, for-profit facilitating agents at the time, changes in tax laws for the 2005 tax season ushered in a new self-sufficiency among a smaller class of NPOs, often more closely geared towards benefiting from charitable vehicle donations.

Consider the very large field that benefited in varying degrees from the glory days of charitable vehicle donation, before government regulation stepped in and made it harder for people to take unreasonable deductions that varied greatly from the actual amount that charitable organizations actually received.  Though a large part of this had to do with some vaugery in how the law was written, it was also a consequence of a large segment of often less-than-scrupulous third-party agents who acted, supposedly, on behalf of the charities in question.

Now that one can only deduct the amount their charitable vehicle donation actually nets the IRS-approved charity, many of these third party players have left the game seeking easier marks elsewhere.  This means that many charities that relied on charitable vehicle donation for more than a small percentage of their annual budget were forced to either handle their own donations or make much stricter agreements with the companies that retrieved the vehicles for them.

As such, many of the charities that once accepted charitable vehicle donations were interested only in the money they were able to get from sales.  These include many of the more commonly known and nationally represented charities such as Easter Seals, and the Lung Association.  Indeed, medical related funds are very common types of charities that accept monies from donated cars rather than the cars themselves.

Some NPOs that accept charitable vehicle donation do so in an effort to further aspects of their social mission that include donating repaired vehicles to needy residents or using them to create a fleet of vehicles to shuttle old folks to their doctor appointments.  Sometimes the receipt of a charitable vehicle donation is tied to taking classes learning how to fix and maintain such a car, should anything go wrong (which it undoubtedly go haywire in the span of a few years given the used nature of your donation). 

Like Habitat for Humanity, some charitable vehicle donation projects make part of the charitable process dependent upon the recipients and other members of the community working together to actually make the donation something useful.  Such charities with an educational and uplift mission don’t have to be schools, though other types of education are usually involved.  In this case, your charitable vehicle donation has the best chance of actually becoming a running and useful gift.

Another type of charity that can use your charitable vehicle donation doesn’t have the facilities to fix vehicles, but may have a need for a donated vehicle.  For instance, some schools have use for a vehicle temporarily, such as when the sports teams are travelling, but as soon as they’re back for the year, the car may be sold to the highest bidder.  This can include colleges and adult education, too.

One surprisingly eager recipient of charitable vehicle donation are the local police and fire department.  This is one area where a boat may actually be likely to be used for professional purposes, such as in the case of search and rescue missions.  Most police and fire departments are always on the lookout for a car that runs well enough to be used right away.

The ideal charity is one that can use your charitable vehicle donation directly rather than selling it as quickly as possible at auction.  In the case of educational missions, a car with few dents and mechanical problems can prove invaluable to those in need, even if your charitable vehicle donation is in pretty rough shape when received.

Prior to 2005, the ultimate use of a charitable organization’s car donation program had very little to do with how much you could expect to receive as a tax deduction.  In fact, many for-profit organizations used the lure of deep (and often totally out of line) deductions to lure donors into supporting a charitable organization. 

Car donation proved very lucrative as a type of revenue for many third-party agencies that facilitated vehicular donations for various charitable organizations.  Car donation today still represents a good deal for both the  charity or non-profit organization (NPO).  By dealing directly with charities that have an actual use for what you’re offering in the form of actual transportation.

On the other hand, many charitable organizations for car donation that specialize in such gifts, have traditionally used wholesale sales yards and demolition services to get rid of cars as quickly as possible.  This is especially true of automobiles that require some work to get them in top running (and selling) condition.  In this case, you are only able to claim the sale amount, no matter how low, as your itemized deduction.

Just like a house, the more work you put into upkeep, the higher the inherent value when it comes time to sell.  You not only get to enjoy the benefits of the work as well as the often time surprisingly high sale value that even a small improvement job can guarantee.  It is the same when giving to a charitable organization.  Car donations, when properly repaired and cared for, can give an auto a new lease on life that may last for years.

Of course, as far as the needy populations of a community are concerned in this day and age, the better mileage the car gets, the more likely it is to be useful to those who need donated cars to commute to work from a fair distance.  Those who are needing transport for children over relatively short distances will appreciate vehicles with extra room. 

If you want to find out what sort of vehicles are in demand in your community, there’s no substitute for directly contacting the charitable organization in question.  Car donations of running automobiles, suited to your local population, are the most likely to be used rather than sold for the cash.

Even cars that are fixed up to be sold may wind up being sold at auctions that undermine the sale value of your car.  While you can make a case for why you should be granted extra deduction monies that more closely reflect the fair market value of the vehicle, it may behoove you to take the lower deduction amount to avoid an unpleasant audit that could result in loosing your deduction entirely.   Sometimes it’s best to err on the side of caution.

Of course, your tax preparation professional will be able to advise you regarding such finer points of tax strategy.  Generally speaking, however, cars that are repaired for auction are sold to the highest rather than lowest bidder.  You have every right to inquire after he proposed use of any car you plan on giving to a charitable organization.  Car donation is now so dependent upon the ultimate use of that car, that even if you don’t care how the charity in question uses your gift, you have to appreciate the benefit of how a efficient use of an old car can result in the highest possible deduction benefit to you as a donor.

You may want to seriously consider narrowing your search to locally run charitable organizations.  Car donation to such charities and NPOs that have a mission involving automobiles has a better tendency to deliver the maximum possible deduction allowed under law. 

Often this means that your car not be too far gone or require very expensive parts to make it run reliably or have any major conditions that prevent it from being registered in your state.  However, if your automobile meets the criteria of your local charitable organization, car donation may be an excellent option, no matter what tax bracket you occupy.

There are many reasons why needy families in your community can benefit from charitable donations of your old automobile.  Much of this is rooted in the free market economy that dominates in the United States, sometimes despite the best interests of low-income workers that make up the bottom of the labor pyramid that drives consumer spending and business revenues.  Add a hot real estate market that has led a renewed flight of entry level jobs from densely populated urban centers that are well-served by public transit, and you have a crisis situation for many such workers that can only be solved by charitable donations.

It’s not just people on welfare that are in desperate need of charitable donations in the form of food aid and autos.  There are millions of gainfully employed persons in the US who are unable to meet even their  most basic needs.  Welfare reform in the 1990s led to a vast increase in

Recent moves by the Bush administration to reclassify poverty are not fooling anyone living that nightmare.  Despite cheery headlines to the contrary, the poor are getting poorer and there are fewer people interested in their plight than ever before.  Perhaps it’s because so many who consider themselves “middle-class” are beginning to struggle as only the poor had once. 

Perhaps it’s due to vitriolic rhetoric coming from neo-conservative mouthpieces and politicians who decry any use of public funding to support people not entirely like themselves.  Perhaps it’s just easier to assume that anyone can make it in America.  Well, anyone can, but the cards are definitely stacked against those with low incomes.  Anyone who has ever investigated taking out a payday loan to buy groceries or relies upon credit cards to make ends meet can attest to that.

Regardless of the reasons why charitable donations of automobiles are in such high demand, they are desperately needed by an ever-increasing segment of the working populace.  This problem is exasperated by the premium paid to workers who are able to navigate outside the areas of public transportaion.  Having a vehicle not only means that workers are able to free themselves from the whims of late trains and missed bus transfers but also, the ability to take higher paying work and finally crawl out of the hole and become more fully contributing members  of society who are not dependent upon charitable donations of anything.

That said, it is imperative that one find an organization that is capable of taking charitable donations of automobiles and giving them directly to needy individuals and families that need them.  Not only does this give you the satisfaction of knowing your charitable donations remain in the community, but you also can rest assured that you’ll be able to take the full, fair-market value of your charitable donations that can represent a significant increase over the wholesale auction price that is often given.

Even if the car is eventually sold at a deep discount to the organization’s constituents, you may still claim the full value, as long as it’s not sold to a member of the general public.  If repairs are made to one of your vehicular charitable donations before use, you’re still able to take that fair market donation for what condition the car finally appeared.

Indeed, organizations that provide automotive transport have classically been those that chiefly benefited from these types of charitable donations.  Whether they exist to transport a needy individual to doctors appointments, a school of higher learning or even just keeping someone in touch with their linguistic community once they’re had to move away to take work elsewhere.

Charitable donations of automobiles also have the advantage of giving a segment of the population a sense of freedom that their low-wage jobs don’t often afford.  It’s this sense of individuality that has made the US the crucible of self-determination that is envied the world over.  Even if you didn’t stand a very good chance of increasing your personal tax exemption with charitable donations of cars and trucks, creating a future population base that is fully contributing to the national economy is useful to everyone.

Perhaps the most personally rewarding sort of car donations involves giving your old ride to the local high school for use in their shop class.  High schools are considered valid charitable organizations according to the IRS, as are colleges and adult training programs that fulfill a charitable mission. 

Since the tax laws regarding car donations were changed in 2005 to stem the tide of fraudulent deductions that were uncovered by several independent reporters and the US General Accounting Office in 2002-3, choosing to make car donations to charities that will fix up the car and put it to good use will help you get the full fair market value for your car in the form of a legal deduction. 

Most high schools have a shop program, just as most schools have a budget shortfall these days.  Just after music and arts programs, the mechanical arts programs are very often among those programs on the chopping block when budget time rolls around.  A healthy stream of car donations to such programs not only emphasizes the need for such training, but can also become a valuable revenue source for the schools in question, making shop classes that much more difficult to cut or limit.

Moreover, the proceeds from the sale of newly renovated car donations can benefit other programs such as arts and music.  Even if the purpose of such proceeds are turned right back into trips to the Corvette Hall of Fame for shop class students, a valuable message is sent to those students that their services will be required upon graduation, so perhaps they ought to pay attention.

Indeed, there’s nothing quite like seeing your old jalopy being used to haul a float in the homecoming parade.  You can watch it drive by with the satisfaction that money from your car donations is staying in the local community and going to benefit people whose training your town will rely upon for years to come.

Of course, there are limits to just how junky the automobiles used for car donations can be while remaining useful training.  Particularly if there are very expensive parts that need to be ordered and can’t simply be repaired.  In this case, the school might find itself spending more on parts than the car is likely to get when it’s eventually sold.

It is this sale price that drives the ultimate financial value of car donations as far as the donor is concerned.  One of the most important aspects of such ar donations is the amount of deduction that can be claimed.  Though you should get a receipt of transfer as soon as a vehicle is donated to the school, the ultimate value will be determined by the final sale price of the vehicle. 

This represents your fair market value of the donated car and is often quite a bit higher than if you tried to sell the car yourself without making repairs or if a charitable organization simply sold the vehicle on the open, wholesale market.  Even if the car is eventually given away or used to transport the girl’s softball team to away games, such car donations may still be deducted at the fair market value according to publications such as the Kelly Blue Book.

There may be other restrictions.  For instance, some high schools stipulate that only car donatations of US manufacture are suitable for their students to work on.  This isn’t necessarily a type of bias – they may simply not have metric standardized tools to do the work on foreign autos.  If you do have the proper tools to work on your oddball car, you might want to consider throwing those in with any such car donations, to sweeten the deal.

Especially in demand are older or classic cars that have plenty of room and require body work.  Vehicles that allow for a mechanical tune up without special diagnostic equipment are also highly prized car donations.  Taking all these variables into consideration, your old vehicle might be the very thing for your local high school to refurbish into the lean, mean, driving machine you fell in love with in the first place.  Having a plaque on the wall with your name on it isn’t a bad incentive either.