Hello and Welcome to Your Car Donations Blog, I hope you find the answer to your questions here.

Since the 2005 rulings that severely limited the amount of money that could be deducted for the most common types of car donation, non-profit organizations with an educational or a mission that includes the direct use of cars have had to come up with new sources of funding to make up for the loss of donor activity.  In most cases, for the amount required to offset the loss of car donations, non-profit organizations with a charitable mission were relatively unaffected since the amount they were receiving from third-party donation agents was very small anyhow.

In a 2003 report from the General Accounting Office, it was shown that most charities that employed such third party agents were likely to only receive 1-5% of a vehicle’s actual worth from car donation.  Non-profits with a charitable mission that doesn’t include the actual use of a car had few options when accepting donated cars, especially those that needed mechanical repair, other than selling them on the scrap or wholesale markets.

At that time, there were over 4,000 organizations accepting car donations.  Non-profits with their own services accounted for less than 3% of the total in 2002.  However, since the rule changes of 2005, the percentage of non-profits with their own shops has gone up markedly since so many of the for-profit companies have gotten out of the car donation business since is no longer nearly as lucrative for them.

Of course, this means that organizations that are in a position to accept cars directly are well-placed, as there are just as many cars that are good candidates for car donation.  Non-profit organizations that accept vehicles for use, usually those that are still running and able to be delivered by the donor, have been able to reach a higher share of the donor market since there’s less competition and a decade of billboards and radio ads by those for-profit companies has left an impact on people’s minds.

As for the various fund-raising challenges that charities now face without car donation, non-profits nationwide have adopted an expanded list of items they are willing to accept.  Cash is always good and is the donation of choice, usually in the form of a nice, fat check.

Next, there is the inevitable acceptance of non-cash gifts that are still related to money markets or other business forces, such as stocks and bonds.  These are very easily turned into cash for operations.  Car donation to non-profit organizations is, even in the best of circumstances, takes longer to turn into cash money.

Even coin collections, stamps and other small, non-mobile hard goods of great value are accepted in many cases, in lieu of car donation.  Non-profit organizations are now set up to handle just about anything that can be easily shipped, partly due to the ease of putting items up for auction on eBay and other auction sites.

The same rules that apply toward car donation to non profits apply toward the donation of furniture and household goods.  In fact, one is now barred from taking any sort of deduction from donating items that are not in “good” or better shape.  That means no more sweaters with holes and no more mangled tennis rackets.

For instance, designer clothing that cannot be sold at a charitable retail store like those run by the Salvation Army, St. Vincent De Paul or the Goodwill Industries, is then sold as scrap material, and very probably sent to China, only to return as part of a cheap rug at WalMart.  The IRS isn’t interested in funding a trade imbalance, either.  Thus, one can now only take the real value of clothing donated, just as with car donations.

Non-profits that are ready to make the best use of the car donations that come to them won’t have to use additional sources of funding unless expanding their mission or trying to offer their paid employees a higher wage.

In the 1990s and early ‘aughts, it seemed you couldn’t turn anywhere without seeing an ad or hearing a radio commercial, begging people for vehicle donations.  These ads resulted in a massive increase in the number of cars donated per year, but the overall number still wasn’t very high.

According to a General Accounting Office report to the Senate Committee on Finance made in late 2003, the actual number of individuals or small businesses that donated automobiles was less than 800,000.  That means that fewer than half a percent of the nearly 200 million Americans who file with the IRS each year had vehicle donations to claim in a given year when the practice was at its height.

This doesn’t count the many who had the right to claim such a deduction for vehicle donations and didn’t bother itemizing their returns.  It was estimated that the actual number of donations might be as high as 1 million, or a little over half a percent.

Since 2005, the numbers of vehicle donations have declined with the amount of advertising, but also because the relative benefit to donors has been decreased when the IRS tightened up a loophole that essentially had the federal government subsidizing the used car parts market in the guise of charitable donation.

Today, vehicle donations account for a far lower percentage of tax returns than they did in 2004, though numbers now remain constant, with far fewer discrepancies between the amounts donated to charities thusly and the amount claimed.

That said, there certainly are still opportunities with vehicle donations to claim the full value of your car on the open market – or what the IRS calls the, “fair market value,” of your car.  This requires you to find a charitable non-profit organization (NPO) that can use your car directly as part of its charitable mission.  This may involve giving it away to a needy family or using it to deliver hot meals.

Of course, given the amount of money spent on advertising, most people don’t realize the donation option that will take their car (often not running) away has become such a difficult prospect.  Essentially, most taxpayers who go the option of using a third party agent for their vehicle donations, are limited to a $250 deduction without documentation, and up to $500 without the charitable NPO having to file a Form 8283.

Such a form is sent out after vehicle donations to acknowledge the date, type, actual value to the charity and ultimate use of your gift.  This is in addition to the receipt you should get as soon as the title is transferred and the car hauled away.

If you’re able to drive the car or truck to their offices, many charities that have an actual use for your car will accept donations.  Otherwise, most third-party agents that facilitate vehicle donations don’t want to assume the liability, preferring instead to tow all vehicles away indiscriminately.

Vehicle donations remain popular in the United States because there is still a potential for a significant tax deduction.  However, since 2005 this deduction has been that much more difficult for people making relatively less valuable donations to claim the true “fair market value” for their cars.  If one is well-off enough to donate a car that’s worth at least $5,000 in independent appraisal, the way is cleared for this higher rate of deduction.

Choosing a charity that handles vehicle donations independently of for-profit middle-men will allow even smaller donations to retain their full value in deduction form.  Were there no tax deductions, it isn’t likely that people would be nearly as interested in charitable donations of cars.

It is uncertain how this is affecting the quality of donated cars, though the quantity certainly has gone down.  It is possible that the quality of cars that reach actual poor people who need cars to get to work and day care has actually gone down since there are fewer donated vehicles to choose from, or it may simply be that the quality of donated vehicles has gone up, with those junkers previously sold now going to recycling programs and skirting the donation angle completely.

Perhaps the best and most common reason for choosing to use a vehicle donation program is the ease of it.  You just sign a form online, on the phone or by mail and someone arrives at your house ready to haul your car, truck, motorcycle, RV or trailer away.  This is generally true, no matter where you live, and frees you from having to spend time or money on the dump or municipal recycling program.

Of course, the truly enterprising could strip their own non-functional car and sell the parts. But the odds are, if you have the ability and resources to pull a car apart, it’d probably still be working.  So, for those few brave souls who want to sell their car, once piece at a time on eBay, there is a potential profit.  However, this hardly ever happens and most people simply let a loosely affiliated string of professionals that make up a vehicle donation program take care of each step of the process in an assembly-line manner.

Most vehicle donation programs are run by for-profit companies who work on behalf of a given charity or, in some cases, many charities that you may choose from when donating.  They are third-party agents who do all the advertising, pickup, and initial sale of the vehicle at a wholesale auction.

From there, your car is torn apart to have the usable pieces removed for sale as used component parts.  The rest is sold to scrap dealers who will then remove the pieces for recycling or simply crush it.  The most important part to most donors who choose to use a vehicle donation program to get rid of their car is the rather small sale amount that can result.

A car worth a thousand dollars, for instance, will typically sell for anything from 5-30% of its “fair market value” at a wholesale auction.  The higher the real retail value of the car, the higher percentage one is likely to receive.

So, assume the vehicle donation program gets $100 for your car or truck.  As much as $70 may have been spent in administrative costs – an average cut for such a company as found by the General Accounting Office (GAO) during an investigation of car donation business practices in late 2003.

That means that only $30 of the donation from your vehicle is going directly to the charity from your gift of $1,000.  Furthermore, you’re limited to what you can deduct by what the charity actually receives, so you are now entitled to a $30 tax deduction – not enough money to justify itemized deductions in many cases.

Unless you can find a charity that doesn’t use outside agents to run their vehicle donation program and, has an actual use for your car or truck, you’ll be stuck with a wholesale auction price.

Of course, the better condition your car is in, the more likely any given vehicle donation program will take the extra time to sell it on the open market.  If this is the case, you’ll receive a From 8283 as a sort of receipt for how much the car was sold for and you may claim this “retail” value as your deduction.

Knowing where to find an agency that has an actual use for your vehicle, rather than using the far simpler vehicle donation program services of professionals, can take a bit of surfing and calling around.  Generally, you’ll be dealing with agencies that don’t spend large portions of their budgets on advertisements.

You may be surprised at the unusual non-profit organizations that may take advantage of your gift.  A gift to any charitable organization with tax-exempt status (not politics!) will net you a tax deduction.  This could be a church, high school, municipal government, college or social organization that has a need for a car to complete its mission or has an educational mission that includes automotive repair.

Such donations allow you to claim the “fair market value” of your car, or the amount you’d receive if you were to take a classified ad about and conduct the sale yourself.  So, your choice is between relative ease and your potential tax deduction.