Car Donation Tax Law Changes
How do changes in the tax law affect how I donate my car?
On October 22, 2004, the President signed the American Jobs Creation Act, 2004, into law. It became effective January 1, 2005.
The law applies to all 501 (c) (3) organizations that:
- Accept vehicles, boats, and airplanes as donations; and
- Sell the donated items to raise funds for their charitable mission.
The law applies to donors who:
- Donate vehicles, boats, or airplanes to a 501 (c) (3) that meets the above criteria;
- Donate such items on or after January 1, 2005;
- Itemize their Federal Income taxes.
The law adds additional reporting regulations, which require that:
- Charities must disclose to their donors and the IRS the gross proceeds raised on the sale of their donated vehicle when the vehicle sells for $500.00 or more;
- Donors must use the gross selling price reported by the charity as the vehicle’s value for tax purposes if the vehicle sells for $500.00 or more.
The National Kidney Foundation advises donors to:
- Speak to their tax preparers for details;
- Thoroughly research a charity’s practices before donating a vehicle.
Nationally, only 30 percent of tax-filers itemize their taxes, according to the IRS.
The National Kidney Foundation received its first vehicle donation in 1991. Since then, over 75,000 vehicles annually have been donated to fund the charitable missions of the Foundation. Nationally, over 540,000 vehicles have been donated, making the National Kidney Foundation’s “Kidney Cars” program the most popular and trusted vehicle donation program in the United States. Proceeds from donated “Kidney Cars” fund patient and support programs, early detection and intervention screenings, and organ donation initiatives.
It is expected that by 2010, the number of kidney failure patients in the U.S. will double to over 700,000.
Nationally, over 300,000 people have kidney failure and must go on dialysis or get a transplant in order to stay alive. It is expected that at least twice that are at risk for kidney disease and don’t even know it.
What does the new federal law mean for charities?
As of January 1, 2005, charities that accept donations of vehicles, trucks, boats, and airplanes -- and later sell these donated items -- will be subject to additional reporting requirements. Charities will be required to disclose in writing, to each donor and to the IRS, the gross proceeds raised from the sale of their donated vehicle when the vehicle is sold for $500.00 or more.
What does the new federal law mean for donors?
The law will not affect donors who do not itemize on their taxes. Donors who do itemize their taxes will no longer carry the burden of determining the value for their donation. Instead, they will receive a verifiable written receipt from the charity, which will document the gross proceeds of the donated vehicle valued at $500.00 or more. Donors are encouraged to speak to their tax advisors for more information.
Won’t that increase the amount of time it takes before donors receive receipts?
The law requires charities to issue receipts within 30 days of the sale of each vehicle valued at $500.00 or more.
How does this impact car donation as a whole?
When people outgrow a vehicle, they still have the same three options:
- Trade it in to a car dealership;
- Endure the hassle and expense of selling it on their own; or
- Donate it to a worthy cause and possibly qualify for a tax deduction.
Those who prefer to donate their vehicle and receive a tax deduction, still have that option. Won’t this make car donations undesirable?
No. The same attractive reasons for donating a car to the Kidney Cars Program still exist, such as: helping to fight kidney failure, taking a tax deduction when taxes are itemized, and efficiently transferring a vehicle to another party, all remain in tact. The largest impact of the law is being imposed on the charities themselves, and the National Kidney Foundation is ready to handle these additional reporting requirements.
Could this law enhance charitable car donations?
Perhaps. This bill could make car donations more desirable because the IRS will not challenge a deduction that is verified by a documented sales price. The National Kidney Foundation maintains the highest level of ethical standards in its operations and will uphold the letter and the spirit of the law.
What kind of reaction is expected to this law?
The National Kidney Foundation expects two profound responses to this bill: an influx of donated vehicles in the remaining months of 2004, and, due to the increased reporting and operational burdens, a falloff of smaller or less reputable charities that currently accept vehicle donations.
Now that donors have a vested interest in getting the best prices for their vehicle, how will they know which charity to choose?
While the National Kidney Foundation cannot speak for other charities, the Foundation expects to continue its proven track record of fetching some of the highest per-vehicle proceeds possible.
The National Kidney Foundation is proud of its personal investment in learning the automotive sales industry, and has embraced this program from the get-go. Over the years, Foundation representatives have continually improved and refined the protocol used to sell vehicles to achieve the highest yield in the shortest amount of time. The National Kidney Foundation has depth and insight in this area.
