The Nonprofit FAQ

What about car donation programs?
Special rules about tax deductions for car donations took effect January 1, 2005.

(Note: In March 2008, the Government Accountability Office (GAO) issued a report on the effect of these new rules. See http://www.gao.gov/new.items/d08367.pdf. Generally, the programs reported reduced levels of donations and revenue, and increased administrative burdens. -- Ed.)



Here's the IRS summary of the new rules:

Acknowledgement Required for Car Donations



Qualified organizations that receive car donations after December 31, 2004, must give the donor a written acknowledgement of the donation. This rule generally applies if the claimed value of the donated vehicle is more than $500.

This rule also applies to donations of boats, aircraft, and any vehicle manufactured mainly for use on public streets, roads, and highways. However, this rule does not apply to donations of inventory.

Contents of acknowledgement



The acknowledgement must include the following information.

  1. The donor's name and taxpayer identification number.
  2. The vehicle identification number or similar number.
  3. A statement certifying the organization sold the car in an arm's length transaction between unrelated parties.
  4. The gross proceeds from the sale.
  5. A statement that the donor's charitable contribution deduction may not be more than the gross proceeds from the sale.
  6. The date of the contribution.


However, if there was significant intervening use of or material improvement to the car by the organization, the acknowledgement does not have to include the information in items 3, 4, and 5 above. Instead, it must contain a certification of the intended use of or material improvement to the car and the intended duration of that use and a certification that the vehicle will not be transferred in exchange for money, other property, or services before completion of that use or improvement.

This acknowledgement must be provided within 30 days of the sale of the car or, if there is significant intervening use or material improvement of the car by the organization, within 30 days of the contribution.

The organization also must provide this information to the IRS.

Penalty



There is a penalty for knowingly furnishing a false or fraudulent acknowledgement or knowingly failing to furnish a required acknowledgement in the manner, at the time, and showing the information required. For details about this penalty, see section 6720 of the Internal Revenue Code.

More information



The IRS expects to issue more guidance on this rule early in 2005.

These new rules implement the tax law changes enacted under section 884 of the American Jobs Creation Act of 2004 (HR 4520).



These new rules were enacted, at least in part, because of the scrutiny car donations received during 2004. The IRS Commissioner testified before Congress on June 22 about this and many other subjects. In his testimony, Mark Everson said "Highly troubling is GAO's analysis of 54 specific donations, where it appears that the charity actually received less than 10% of the value claimed on the donor's return in more than half the cases, and actually lost money on some vehicles." (Read the entire statement at the http://www.irs.gov/newsroom/article/0,,id=124191,00.html">IRS website.)



The following paragraphs are from discussion of this topic before the new rules took effect in January 2005. --Ed.



David E. Ross wrote "Donate a Car?" and published it at
http://www.rossde.com/donate_car.html His advice: for any item worth less than you paid for it, sell it yourself and donate the proceeds to a charity of your choice (this would be true for nearly all automobiles); for any item worth more than you paid for it, donate it to the charity and document a deduction for the fair market value. His article contains examples of the financial calculations that underlie the choice of whether to donate the asset or the proceeds from selling it yourself.

Putnam Barber wrote column titled "Steering Donated Cars Back on Track" which can be found at http://www.tess.org/misc/chron9807.html

Posting links to these articles in the NONPROFIT discussion list in April of 2001 led to a comment from a reader who didn't agree with the points of view expressed and then a reply from Putnam Barber; see http://www.nonprofits.org/npofaq/misc/010427cardonations.html

The IRS has a discussion of issues with "suspect" vehicle-donation programs on its website (in a PDF file) at http://www.irs.gov/pub/irs-utl/topict00.pdf This article focuses on programs where a charity has engaged a contractor to handle all the details of vehicle donations in return for a share in the proceeds (in contrast to charities that accept such donations directly either for use in their programs or for resale).

Some states have initiated programs to solicit donations of used vehicles which are then passed on to low-income people to help meet transportation problems that might make finding and keeping employment difficult. A good discussion of this option (from a policy point of view) is online at http://www.unm.edu/~atr/Moving-Forward-Append-G.pdf People who live in states where these programs are currently operating might want to consider this option when thinking about donating a car.

There are a great many active vehicle-donation programs and services accessible through the World-Wide Web. A search at http://www.google.com for "donate automobile" turned up over 51,000 pages on July 12, 2003.

While on this topic, it's worth mentioning that the donor should always make absolutely sure that the motor vehicle registration records are updated to show that ownership has been transferred to someone else. There are enough stories about getting entangled in parking violations and other unpleasantnesses long after relinquishing a car to suggest that extra attention is needed on this part of the transaction. (For that matter, this advice applies to selling a car as well as donating one.)



Posted 4/25/01; revised 4/27/01; 7/12/03; 2/25/04; 1/30/05; GAO Report link added 3/25/08 -- PB