(ARA) - How much of a deduction can you take
on this year’s tax return for donating the clunker-of-a-car in your
garage? Donor beware, there are a few things you need to know before
giving your vehicle to charity.
Research the Charity
A recent report found that many charities across
the United States misrepresented themselves or the amount of the donation
that would be used for charitable purposes. According to a 2001 study,
donors expect at least 70 to 80 percent of a charity’s funds to be used
for charitable purposes rather than administrative costs; however many
charities ended up with only 15 percent of the original donations made.
When a vehicle is donated to a charity, it is
then sold at auction by the charity itself or a third party. In both
cases, there are towing and administrative costs deducted from the final
amount the charity receives.
One company, ADESA Impact, out of Indianapolis,
is a wholesale auction company with a national vehicle donation division.
ADESA Impact is under contract with many of the nation’s most recognized
charities.
According to Joe Hearn, one of the company’s
vice presidents, ADESA Impact is able to provide one of the highest
rates of return to the charity because they have negotiated the lowest
rates for transportation and sale of the vehicle while still pursuing
the highest returns through its auctions.
Avoiding an Audit
The U.S. General Accounting Office (GAO) reviewed
the average deduction claimed for donated vehicles in 2000 to determine
whether the values fell within the ranges identified in the Blue Book
and found that almost all of the vehicles did. However additional information
regarding the vehicle’s condition was not available to determine exactly
how appropriate the amount deducted was.
Kelley Blue Book, the recognized vehicle valuation
and pricing guide, offers a free tool on their Web site called the Vehicle
Condition Quiz. When determining the ‘Private Party’ value of your vehicle
on their site, which is the value you’ll use for a vehicle donation,
click on the ‘Rate It’ button when the site asks you to select a condition
and then click ‘Get Pricing Report.’ You’ll be taken to a page where
you can appraise your own vehicle through a 27-point appraisal. Fill
out the appraisal form and print it. It includes items that will provide
you and the IRS with the details the IRS needs. You may also want to
take photos of your vehicle to prove its value and condition when filing
with the IRS.
According to the GAO, the IRS has a compliance
program which looks at how much taxpayers claim as the Fair Market Value
for a vehicle vs. what the charity actually sold the vehicle for, making
Kelley Blue Book’s Condition Quiz a valuable resource. While the IRS
recognizes that there are differences between fair market value and
wholesale prices at which vehicles are sold at auction, the difference
will give them an indication of which filings may need to be scrutinized
further. In fact 49,000 2001 tax year filings will be reviewed and could
be subjected to audits.
Know what percentage of your vehicle donation
is actually going to the charity, make sure the charity you are donating
the vehicle to is a reputable one, and have a detailed vehicle appraisal
from Kelley Blue Book’s Web site for the IRS.
Tips for Donating Your Vehicle
Recent donor studies show that the ability to
claim a deduction on their taxes is the top reason most people donate
a vehicle to charity. If you are considering donating a vehicle there
are several things to be aware of:
1. ‘You’ must determine the value of your vehicle.
The IRS considers it a conflict of interest for
the charity to determine the value of your vehicle. However vehicles
worth more than $5,000 must be independently appraised. This appraisal
must be completed before the charity picks up the vehicle.
2. You can deduct contributions only in the year
you make them.
Keep in mind you must itemize your tax return
to claim a tax deduction.
3. Get a receipt.
When you make any non-cash contributions, you
must get and keep a receipt from the charitable organization showing
the name of the charity, date and location of the charitable contribution,
and a detailed description of the donation. This receipt also includes
the charity's tax identification number. Keep this for your records.
4. Assign a fair market value to your vehicle.
Use Kelley Blue Book's Web site. The Condition
Quiz is very detailed allowing you to input specific information about
your vehicle's current condition to give you the Fair Market Value.
Use the ‘Private Party’ value and the ‘Help Me’ links in the pricing
report feature to get the most accurate value.
5. Make sure the charity is a name you recognize
and trust.
The donor should be familiar with the charity's
purpose. Be careful of 'sound-alike' charities, e.g. National Kidney
Foundation vs. National Kidney Fund, American Heart Association vs.
American Heart Society. You can also call the Better Business Bureau
to determine if the charity you have chosen is a recognized organization.
6. Ask how much money the charity receives.
According to a report from the from the Office
of California Attorney General, more than $34 million was donated in
automobile revenue in 2000, however, only 32 percent of the gross revenue
was returned to the charity.
7. Sign the title over directly to the charity
or their agent.
Don't leave the title blank under any circumstances.
Many illegitimate charities ask that the title be left blank. This practice
may leave you liable for the vehicle months after it has been donated.
8. Ask how and where the money will be spent.
In light of the confusion surrounding the monies
raised after September 11, donors should be sure to ask how the money
is being utilized and inquire if the money is spent locally.
For more information on ADESA Impact charities,
vehicle donation and tax forms required for donation, visit the Kelley
Blue Book Web site at www.kbb.com and the IRS Web site at www.irs.gov.
Courtesy of ARA Content
