Tighter tax rules shrink car donations

July 23, 2008

Car donations have plummeted since Congress tightened tax rules for claiming charitable deductions in 2004, an analysis of recently released IRS data shows.

Between tax years 2004 and 2005, car donations of more than $500 dropped by two-thirds, according to Grant Thornton's National Tax Office.

Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value.

Legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of more than $500 to either actual proceeds from a vehicle's sale or the vehicle's fair market value, whichever is less.

In 2004, more than 900,000 tax returns claimed deductions for donated automobiles.

In 2005, the last year for which the IRS has detailed data, fewer than 300,000 tax returns included such claims.

The total amount deducted for all car donations declined from $2.4 billion in 2004 to a $500 million in 2005.

Although the number of car donations fell 67 percent, and the amount of deductions claimed as a result of such donations fell more than 80 percent, the deduction claimed per car donated declined by only 41 percent.

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