CAR DONATIONS: A deduction reduction

A new change in federal law may reduce auto gifts

An old clunker can turn into new money for many charities throughout the year, but come Jan. 1, the way charities benefit from car donations will change.

The American Jobs Creation Act, passed in October, has a law folded into it restricting car owners from claiming fair market value for their donation on their taxes. After Jan. 1, donors will be able to claim the amount the car eventually sells for at auction, which in some cases can be much less than the fair market value.

For example, if a car is worth $3,000, if sold privately, and is sold for $500 at auction for charity, the donor will receive the $3,000 tax deduction prior to Jan. 1. From then on, the $500 deduction would apply.

"Generally, the onus is going to be on the charity to report what the car sold for so the taxpayer can put it on as a deduction," Internal Revenue Service spokesman Raphael Tulino said. "The main message is the reporting of it is going to be a little more regulated, or different, because of the noncompliance that's been seen in car donations."

The change has some charities worried and shaking their Magic 8 balls to predict what might happen come the new year.

Candlelighters for Childhood Cancer of Southern Nevada brings in about $1,000 per month from car donations. The charity would take a large hit if the number of donors decreases because of the new law, said Landa York, director of operations.

"For a nonprofit, that's a quite a bit of money. For nonprofits, they live from fund-raiser to fund-raiser," York said. The money Candlelighters brings in helps families of children with cancer with utility bills, groceries and medical travel expenses. "We stretch that money as far as we can."

Bob Devaney, vehicle donations manager for Catholic Charities, is holding his breath for now, for his job may be on the line. But he remains hopeful the change won't make for a drastic decline in funds.

"We're just going to have to play it by ear and see how the donors respond to it," he said. "Some people just want to give something to a charity. Either they're aware there's no deduction or they don't want to sell the car. It's hard to gauge how much less the phone will be ringing."

Catholic Charities, like Candlelighters, has been using car donations as a fund-raiser for about two years. No matter how small the profit, the charities would rather not lose the money.

"The more money we bring in, the more important it becomes to the charity," Devaney said. "We're going to have to operate under the new law and see how it goes. We hope they are still interested."

Over at Opportunity Village, car donations have become a significant chunk of the charity's revenue. This year, the organization expects to bring in $300,000 to $400,000 from car donations alone. Ed Guthrie, executive director, has seen everything from a clunker that had to be towed to a Lexus SUV donated to the organization.

"We just had someone donate a Mercedes," Guthrie said.

Guthrie suspects a 10 percent to 20 percent decrease in car donations after Jan. 1. To Opportunity Village, that could be $30,000 to $70,000 less in profits. To smaller charities, it could mean they are out of the car business.

Opportunity Village receives an average of $350 per vehicle donated.

"Groups that were marginally making a little bit of money probably won't do it anymore. Opportunity Village probably (then) won't see much of a decline because people who were going to donate to the smaller charities will donate to a larger charity," Guthrie said. "I think the largest impact will be on the smaller charities."

The way fund-raising works, many charities won't notice the impact right away. There is a standard dip in donations beginning Dec. 31, Guthrie said.

"There will probably be a larger dip in January and February next year. We're probably not going to know the impact until somewhere like six months down the road," he said. "You can't tell if it's a seasonal difference or if it's a real dip. It will take a little time to let everything settle in."

Although charities are waiting for the other tires to drop, this is no time to rest. Officials are preparing for, what could or could not be, a tough year of fund-raising.

At Opportunity Village, Guthrie said part of its plan is to try to find auction outlets that will produce more money for a vehicle, helping the charity's profit and the donor's tax deduction.

"If you're going to donate a Lexus SUV, you want that charitable donation on your taxes," Guthrie said. "We'll look for avenues to sell those higher-end donations at closer to the fair market value. It will take some experimentation. We might go to eBay. Those are some of the things we're exploring right now."

Instead of the occasional Mercedes, Guthrie said he will probably see more 8- to 10-year-old cars in the donations.

"I do think we're going to have some problems, especially in the short run," Guthrie said. "In the long run, it will still be a substantial part of our program."

The law change could still scare some donors away, particularly if they realize before they donate that it will bring no tax deduction.

Car donations for a tax deduction only benefit those donors who itemize their deductions. Out of 130 million tax returns filed each year, two-thirds take a standard deduction and don't itemize, Tulino said.

"You have to be able to itemize to realize that deduction on your return," he added. "It's important for folks to realize that."

Even with itemized deductions, the average household is better off taking the standard deduction for a higher return, Tulino said.

"A deduction is an adjustment to your income," he added. "You lower the amount of income that is taxed."

It wasn't the fear of disappointment come tax season that propelled Henderson resident Lee Papa to donate her 2001 Daewoo to the Clark County Food Bank. It was the fear of trying to privately sell another car.

"(The tax deduction) is certainly beneficial, but it's not the primary reason," she said. "It's kind of a hassle to sell it. It's quite a nightmare to go through that process."

Papa was motivated to donate her car by the end of the year when she heard the law was changing Jan. 1.

"We probably would've waited until next year to do it. It's been sitting in our driveway," Papa said. "(The food bank) is a nice resource. They're a general food bank, and you hit the organization that needs you."

The new law will change the way charities raise funds, but that's nothing new. Charities, such as the Candlelighters, are constantly drumming up new ideas to raise awareness about their organizations. The competition for nonprofit dollars will stay tough, York said.

"As the Las Vegas Valley population increases, the number of children who are diagnosed increases, and unfortunately, not always do the funds increase," York added. "It's a battle of who's got the money and where we can use it."

Getting the word out about the law change is a focus for charities that benefit from car donations. Charities are encouraging donors not to wait until after the holidays to donate their vehicles.

Organizations such as Catholic Charities, are spreading the message in hopes there will be a surge in donations this month.

"Maybe we can go out with a bang. Just kidding," Devaney said. "We hope not to go out at all."


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