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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Re: Donating old car for write-off? Date: 2/23/2003 11:00 AM
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does anyone know anything about donating, and how to claim the write-off?

Whether you can do this easily appears to depend on where you live. My brother lives in NC, and wanted to get rid of an old (but still running) car. I suggested he look into donating it to a charity. He wasn't able to find any local charities willing to take the car, and most of them said they'd never heard of such a thing. On the other hand, I live in the Baltimore-Washington metropolitan area, and here there are at least half a dozen charities competing for car donations - and advertising on billboards, in the newspapers, and on radio. If you're in a metropolitan area of NJ, I suspect you'll have no problem finding a charity to take an automobile in donation. Try Goodwill, for example.

But be advised that this is a much-abused strategy. It's grown enormously in recent years, and the IRS has said that it will be looking carefully at such donations.

In any case, here's how it works. You donate your car to a charity, like Goodwill. They give you a receipt, and often helpfully give you a "blue book" value on the car. They tell you that you can take that amount as a charitable deduction, but that's a little disingenuous. The truth of the matter is that what you can deduct is FMV (fair market value), which may be a long ways from blue book value. If your car really is an "old junker" which you could sell for maybe $300, then that's its true FMV, not the $1200 that the blue book says it's worth. In other words, the blue book is just a rough guide to value, and assumes the car is in reasonable working order. If the engine's shot, or the transmission needs replacement, or the body is just riddled with dents and rust, then you have to adjust the valuation accordingly. Some years ago I gave an old car to Goodwill. The blue book value was something like $1100. The engine and drive train were in excellent condition, and it had four almost-new tires. On the other hand, the rear shocks were totally shot (it was quite an adventure driving it to the Goodwill place!) and I estimated it would cost about $500 to fix them properly (there was considerable rust involved...). So I subtracted that amount from the "book value", and used $600 as true FMV.

Incidentally, virtually none of these donated cars stay with the receiving charity. They are sold to dealers who auction them off - as used cars if they're in decent condition, otherwise for parts or scrap. The charity might realize $25-50 per car in the end. You can see why the IRS might be interested...

So - it certainly can be done, and it's entirely legitimate if you properly assign a FMV. But the IRS might be looking closely at such a deduction. And it may not be worth it in the end. Remember that a deduction simply reduces your taxable income by the amount of the deduction (or a little less if you're a high-income taxpayer). The effect on your bottom line tax depends on your tax bracket. If you're a 27% taxpayer, you save 27 cents for every deducted dollar. If you can stand the hassle of selling the car yourself, it's better to do that - even if you have to settle for somewhat less than FMV.

Lorenzo (been there, done that, got the t-shirt)
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