subtitle: Why donations are down – especially vehicles
How are charitable donations of vehicles affected because of the new tax rules – effective as of December 2017, in the Tax Cuts and Jobs Act – https://www.irs.gov/charities-non-profits/charitable-organizations/irs-guidance-explains-rules-for-vehicle-donations ?
The first tax return year that would be affected is 2018. The IRS hasn’t published statistics for that yet. And Charity Navigator is still only showing statistics up to 2017.
But odds are, all donations are probably down – not just vehicles.
The average person is no longer able to itemize because the standard deductions is over $12,000 for individuals; and over $24,000 for couples. The average person no longer needs to build up tax deductible expenses.
However, people who do want to continue their current program of donations can continue to do so – and should. It’s not about the tax deduction.
You may have heard that people who cannot get a tax benefit from their donations in the current year can carry unused donations forward for the next 5 years. That’s true. But only if you itemize. So if you don’t itemize, you cannot carry your donations forward.
People who do itemize, but don’t get any benefit from their charitable contributions are allowed to carry them forward for up to 5 years. That gives them time to structure their income and deductions so they can benefit from the donations in the 3rd to 5th year.
Another strategy is to gift the money to a trusted friend or family member who can use the charitable contribution deductions. They can make the donation in your honor – and you get to keep your social standing in your religious organization or charity – and they get the tax deduction.
Let’s talk about donating vehicles, though. The rules for making vehicle donations to charity are complicated and difficult to deal with for the average person. Often, the net benefit is not worth the trouble. If you really want the organization to get a benefit from your car – just sell it and give your charity the money. There is no taxable income from selling your personal vehicle. There might be if it’s a business vehicle.
For donations – here the main rules – and the drawbacks:
- a) the vehicle has to be in good condition – usually people only donate their cars when they are in such bad shape that the car cannot be sold. OR…when the car is in good shape, it’s usually an inherited vehicle from a recently deceased relative. Those vehicles might generate worthwhile deductions.
- b) If the vehicle is worth more than $500, you need to get Form 1098 from the charity that defines what they did with the car
- if they are keeping it – they can give you the form quickly
- if they are donating it or auctioning it off, then you must wait for them to dispose of the car to get the value – which often comes AFTER the tax return is due.
- c) If you give it one of those cash for cars charities that provide incentives (like trips to Las Vegas, etc.), you must deduct the value of the goodies you receive from your donation. So, your $750 donation might be reduced by $100 for the trip to Las Vegas (which is usually a time-share sales pitch anyway).
3) It’s must faster, cheaper and easier to dispose of it yourself
- a) You can trade the car in (least amount of trouble, you never have to deal with an unhappy buyer).
- b) If the car doesn’t pass smog (at least in California) you can take it to a designated disposal site and get $1,000 – $1,500 from the State of CA . Does your state have a program like this? (Incidentally, if your car doesn’t pass the smog check, the State of CA might be able to give you $500 to get it repaired.
Essentially, for the average person, there is little or no value in donating your car to a charity. The best tax breaks for vehicle donations will go to those people with expensive cars and collectors’ items. In that case, you might not only end up with a terrific deduction, but you won’t have to report the sale of an appreciated asset. After all, those gorgeous classic cars have usually gone up in value over time.