A Car Donation Is A Great Way to Reduce Your Taxes

By: David Fordly
Submitted: 2007-01-17 16:17:15
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Cars that have been in use for around twenty years readily show their age. From overheating engines, wiggling joints, creaking windows and deteriorating paint, cars become less and less desirable as well as becoming less reliable, as they get older.

As it ages, a car becomes a stronger candidate to become a item for donation to charities. The habit of participating in a car donation drive is supposedly a no-lose strategy for both owners and charities.

Owners who donate their cars are eligible for large tax deductions, while recipient charities generate assets that are not usually received through cash contributions. Charities have quite a few choices on what ways to use the donated vehicle.

The car is often used for transportation for food, or to drive officials to appointments or to run errands. The evolution of car donation drives has a short history. The Washington-based Davis Memorial Foundation conducted the first car donation drive in 1978. The project was started by the organization in order to compete for the small quantity of donations that were available in the US at that time.

Davis Memorial only received five cars during the first year of the program, but that was sufficient to persuade other charities to initiate their own car donation ideas. Shortly thereafter, private fundraising groups came forth and made their services available to charities. The private entities took care of logistics, which happened to be a significant rallying point for charities and they made the programs financially rewarding and simple to carry out.

Charities discovered a fresh source of money and they only needed to cash in on the checks that come each month. The larger charities that conduct their own car donations include the Red Cross, Easter Seals, Mothers Against Drunk Driving, the United Way, Big Brothers/Sisters, and the American Cancer Society.

How much is your car worth?

Many resources on the Internet such as the web sites of the National Automobile Dealers Association and the Kelley Blue Book are very useful in helping owners find the fair market value of their old cars. The tax advantage is determined by the way the car is categorized in terms of its appraisal.

An auto categorized as "low value" brings the owner a tax exemption of $500. Transactions are easily closed, as supplemental paperwork is not really needed. The tax advantage would be restricted to the sale price of the car donation if the vehicle's value goes over $500.

The majority of autos are sold using an auction or dealerships and are usually sold at less than their true book value. Cars deemed safe to drive and in satisfactory running condition are able to be used for various charity functions or can be rehabilitated might bring in a tax deduction of as much as $5,000 for the owner.

A few issues against car donation

A study from the United States General Accounting Office discovered that almost 75% of charities with car donation efforts only ended up getting 5% or less of the fair market value of a car that was included as a charitable donation in an individual's tax return. One of the big reasons for the difference is that expenses to advertise the vehicle in newspapers and television is deducted from the amount received from the auction.

Charities will see returns become smaller, as they need to come up with the costs to tow and overhaul the auto's condition and finalize associated paperwork. Some charities can receive a flat fee for each car donation without regard to its fair market value. Donors have also been known to inflate the value of the vehicle in order to increase their possible tax deductions.

Article source: Expert Articles