IRS rules on car donations have impact on charities

In 2004, the IRS enacted new rules on the amount of a deduction a person could take when they donate a used car to a recognized 501(c)(3) non-profit. In the past, donors could deduct the full Blue Book value of the car. But the new rules meant that donors could only deduct the “fair market value” of the car or what it actually was resold for after it was donated if the car was worth more than $500.

The new rule meant a difference of hundreds of dollars or more in tax deductions for people who donate a car in Florida or any other state in America. And a survey by global accounting firm Grant Thornton LLP showed that it also had a dramatic impact on the car donation industry as a whole.

The survey showed that within the first year of the law being in effect, people making an auto donation of more than $500 dropped off by more than two-thirds. According to the report:

“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 recognized.”

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