Handing over car keysEnlarge Photo
Donating old cars to nonprofits used to be a win-win: charities generated revenue from the re-sale or auction of vehicles, and donors got a nice write-off on their taxes. But automobile donations have slid as much as 90% from where they were just a few years ago, leaving charities to make up big holes in their operating budgets. What happened? The U.S. Congress.
In 2004, Congress passed the American Jobs Creation Act, a sprawling bill that, among other things, offered tax credits for the purchase of "sonar devices suitable for finding fish", cut taxes levied on "fishing tackle boxes", and gave credits for the manufacture and use of biofuels.
Buried in all the bill's legal mumbo-jumbo was also a clause that changed the credits that donors of motor vehicles, boats, and airplanes could take on their tax returns. Previously, they'd been able to claim the fair market value of the donation, but after the law was enacted in 2005, donors could only claim the amount that the car (or boat, or plane) sold for, which was often far below standard value. From a donor's perspective, that made giving to charity a much less attractive proposition.
According to the IRS, car donations drove off a cliff in 2005, plummeting from about 1,000,000 donations in 2004 to around 311,000 the following tax year. For most nonprofit organizations, the recovery has been slow -- if it's come at all.
The National Kidney Foundation at first saw a 40% slump, though its numbers have begun to rebound. However, the stats at Volunteers of America -- one of the biggest recipients of donated vehicles -- are one-tenth of what they had been. In monetary terms, VoA has gone from $20 million in funds generated from annual auto sales to about $2.6 million last year. For a national service organization with a nine-figure budget, that's a lot of ground to recover.
Nonprofit organizations fill a vital role in American life -- that's why the federal government makes them exempt from taxes. The rationale goes that instead of paying cash (i.e. taxes) to improve the country, nonprofits provide services to the community that achieve similar ends.
On the other hand, preventing tax fraud is a good thing, too. The American Jobs Creation Act was meant to stimulate economic growth via tax credits, and at the same time, it tightened up some portions of the tax code. But in doing so, it hurt many nonprofits and the needy people they serve by stifling donations.
Short of pushing to change the law -- something nonprofits might find hard to do, since they can't spend much dough on lobbying -- charities have to up their marketing dollars and improve their ad strategies to grow car donations. Facilitating ways for potential donors to sell or auction their vehicles for top dollar would be a smart move, too. (A new and improved eBay Motors, perhaps?) If you have other ideas, feel free to share them below -- or better yet, talk to your charity of choice.