The just passed American Jobs Creation Act legislation will reduce donor tax deductions for vehicle donations to most charities in 2005. Fair market value donations will be available for only a limited number of charities AND only after the Treasury Department issues authorizing regulations.
Currently, any of the 1 million plus nonprofits in the USA can accept donated vehicles and the donors can deduct the full retail fair market value of the vehicle. After December 31, 2004, donations to most nonprofits will be valued at what the vehicle is sold for by the nonprofit, not the retail fair market value. As sales are usually at wholesale prices far below retail, the tax saving benefit will no longer generate vehicle donations for these charities so most will stop accepting vehicle donations.
The Treasury Department can allow continuation of fair market values for donations that further an organization’s charitable purpose. Congress clearly intended that the Treasury should issue these regulations. Congress's budget estimates showed that tax rate deductions for vehicle donations would decrease only 36 percent. If the Treasury Department does not allow fair market value donations then taxpayers will lose 76 percent to 94 percent of deductions, far more than the intent of Congress.
At this time it uncertain if the Treasury Department will issue guidance before December 31, so we recommend that anybody contemplating donating a vehicle do so before the end of the year. Delayed authorization will mean donor confusion and damage to programs that Congress meant to protect.
