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Car donations up as tax change looms

/ Source: The Associated Press

Charities that raise money through vehicle-donation programs are seeing a small but steady increase in donations ahead of a Jan. 1 change in tax laws that will limit the deductions taxpayers can take for such gifts.

Many charities that rely on the programs say they will retool after the new year to help donors obtain the maximum value for their gift, and are hopeful that the donations will continue.

Under current law, a taxpayer who donates a vehicle is allowed to deduct the fair market value of the car or truck on his tax return.

That has made vehicle donations particularly attractive options, because the fair market value is usually higher than the value one gets in trade at a car dealership.

In tax year 2000, about 733,000 taxpayers filed for car donation deductions, collectively reducing their tax liability by an estimated $654 million, or $892 each, according to a November 2003 audit by the General Accounting Office that provided the impetus for the tax law changes.

Under the changes to take effect in 2005, a taxpayer can deduct only the amount that a charity receives when it sells the vehicle. (Taxpayers may still deduct the fair market value of a vehicle worth $500 or less.) When charities sell the vehicles through wholesalers or auction lots, they may only receive a fraction of a vehicle's fair market value, severely limiting a taxpayer's deduction.

Charities say they are seeing accelerated vehicle donations as the new year approaches. Jim Hartman, director of the vehicle-donation program for the Alexandria-based Volunteers of America, estimated that donations are running 8 percent to 9 percent ahead of last year.

Melwood, a charity in Upper Marlboro, Md., that heavily relies on car donations to provide job training and other services to the disabled in the Washington, D.C., area, also reported an increase in donations.

The spike might be larger if the charities were advertising the upcoming tax change. But Hartman said his organization does not want to create the impression that the vehicle-donation deduction is ending.

"We want people to continue to donate next year," Hartman said. "We want everybody to know that we'll be open for business on Jan. 2, and that the donations are still very much in need."

Hartman said the charity plans a variety of changes in the program to ensure the vehicles are sold at top dollar. In some cases, they might work with retail lots instead of wholesalers, sell cars on the auction site eBay, or make repairs.