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Author: knight427 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121572  
Subject: Donating car for tax deduction Date: 10/9/2001 10:49 AM
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My wife and I have been car shopping and have repeatedly been told our old trade-in might be better donated to take the tax break as all the dealerships will simply wholesale it and give us next to nothing. My wife and I will not itemize our taxes as we rent and would not have enough deductions to overcome the standard deduction. Dose this mean that the donation would not help? If it would, how do I calculate the actual return. I know it depends on our AGI, but I don't really want to give that out. I can work with numbers, what I really need is the equation.
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Author: jcopenhaver One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54475 of 121572
Subject: Re: Donating car for tax deduction Date: 10/9/2001 11:46 AM
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I donated a car a couple of years ago and it worked out just fine for us. Since I gave it to the Salvation Army, I was able to deduct it as a charitable contribution. Since the car was quite old, I used the Kelly Blue Book value (in this case was wholesale price) for a car in excellent condition. It actually lowered my taxes about 1/3 the value I listed for the car. I came out ahead because I didn't have to mess with selling the car, didn't have to mess with car dealers and trying to squeeze out the last penny of value with them, dealing with someone that wants their money back because something breaks after they purchased it from me... and finally... at the end of the day, I knew that I had done something good for people that needed the help.

Get a copy of Turbo Tax and play around with how it will change your refund.

Thanks-

Jim C.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54478 of 121572
Subject: Re: Donating car for tax deduction Date: 10/9/2001 1:29 PM
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My wife and I have been car shopping and have repeatedly been told our old trade-in might be better donated to take the tax break as all the dealerships will simply wholesale it and give us next to nothing.

Whoever has been repeatedly telling you that is simply wrong. From a strictly financial viewpoint, you are always better off selling or trading in the car. The tax deduction is only worth the value of the car times your tax bracket. And, as you have found out, that only works if you are already itemizing deductions.

A better idea is to find out what your car is really worth as a trade-in. There is another board here devoted to buying and selling cars that would be helpful. A reputable dealer WILL pay you a fair wholesale value for your trade.

My wife and I will not itemize our taxes as we rent and would not have enough deductions to overcome the standard deduction. Dose this mean that the donation would not help? If it would, how do I calculate the actual return. I know it depends on our AGI, but I don't really want to give that out. I can work with numbers, what I really need is the equation.

Since you are not currently itemizing, you'll have to find out if the contribution of the car will push your itemized deductions over the standard deduction. If it does, you'll save some tax money. It's simply the amount by which your itemized deductions exceed the standard deduction. Then multiply by your marginal tax bracket. You should find that you don't save much.

Another consideration to donating autos is that the charity usually receives much less than the value of the car. Many donations are handled by professional fund raisers who keep from 25% to 90% of the actual sale proceeds for their costs and profit. Yes, that is not a typo - only 75% to as little as 10% of the wholesale value of the car will actually get to the charity. The rest goes to the company who actually sells the car. That is one reason I believe the IRS is considering examining the auto donation industry more closely in the near future.

If you really want to help the charity, sell the car yourself (or trade it in) and donate the proceeds. They'll get a lot more money to use for their cause.

--Peter <== now getting off his soapbox.

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Author: RiverCityFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54482 of 121572
Subject: Re: Donating car for tax deduction Date: 10/9/2001 2:04 PM
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Well, you won't get a lot of $$ for a trade-in -- you might want to look into selling your car yourself. Then you can donate some or all of the money to charity as you choose.

You can check the car's resale value in the "blue book" -- see http://www.kbb.com/ for links to find its Trade-In Value and Private Party Value. When I sold my car a few years ago, I just set a price midway between the two.

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Author: cmorken Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54566 of 121572
Subject: Re: Donating car for tax deduction Date: 10/13/2001 8:50 PM
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Another consideration to donating autos is that the charity usually receives much less than the value of the car. Many donations are handled by professional fund raisers who keep from 25% to 90% of the actual sale proceeds for their costs and profit. Yes, that is not a typo - only 75% to as little as 10% of the wholesale value of the car will actually get to the charity. The rest goes to the company who actually sells the car. That is one reason I believe the IRS is considering examining the auto donation industry more closely in the near future.

I agree with ptheland. This is a wonderful scam for the fund raisers. If you are donating directly to a known charity, like the Salvation Army, I'd be less concerned. If the donation of the car goes through a "professional" fund raiser, they are probably taking a sizeable amount of the value for preping the car for resale (this is pure profit for them since you handed them the car for free). Only the final amount that actually gets to the charity itself is deductible, REGARDLESS of what the receipt the fund raiser gives you says. When the IRS comes knocking, it won't be on the fund raiser's door. Be wary.


P.S. If anyone has a house in the Minneapolis area they'd like to donate to the charity of thier choice, please let me know, I'd be more then happy to handle the transaction.


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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54567 of 121572
Subject: Re: Donating car for tax deduction Date: 10/14/2001 8:13 AM
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Only the final amount that actually gets to the charity itself is deductible, REGARDLESS of what the receipt the fund raiser gives you says.

I disagree. It doesn't matter how much an intermediary may skim off for prep, the donor can deduct the fair market value of the donated car. If you donate stock, you don't reduce the size of your donation by the selling costs of the charity.

The real problem is that many people wrongly assume they can deduct the full retail value of a pristine, "never-driven" car on a used-car lot, when, in fact, their car had to be towed off their property by the charity.

BTW, the charity is not supposed to provide a value for the car. The receipt should just describe the vehicle. It is up to the donor to determine the value.

When the IRS comes knocking, it won't be on the fund raiser's door.
That's correct. The taxpayer bears full responsibility for justifying the numbers on the return.

Ira

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Author: cmorken Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54568 of 121572
Subject: Re: Donating car for tax deduction Date: 10/14/2001 10:55 AM
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Only the final amount that actually gets to the charity itself is deductible, REGARDLESS of what the receipt the fund raiser gives you says.

I disagree. It doesn't matter how much an intermediary may skim off for prep, the donor can deduct the fair market value of the donated car. If you donate stock, you don't reduce the size of your donation by the selling costs of the charity.


Thanks for the clarification.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 54578 of 121572
Subject: Re: Donating car for tax deduction Date: 10/14/2001 6:07 PM
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<<When the IRS comes knocking, it won't be on the fund raiser's door.>>
That's correct. The taxpayer bears full responsibility for justifying the numbers on the return.


Yes and yes. But I still think the IRS is going to look into the fund raisers themselves, with an eye toward limiting the amount they can skim while still accepting charitable contributions.

And I think the general Motley Fool guidelines for charitable giving are quite applicable - know how much of your contribution (whether it's cash or in-kind) is actually ending up promoting the charitable cause and how much is going to pay for administration.

--Peter

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