NEW DONATION LAW INFORMATION

Over the years, many people have received tax deductions, sometimes quite large, because they donated their car to a charity. Before 2005, people received a tax break for the Kelly Blue Book value of the car. This means that if someone had a car that was worth $2400 per Kelly Blue Book, they would receive a tax deduction of $2400, even if the charity they donated it to only received $500 when the car was sold at auction because the car had a bad motor. The donator would receive a tax deduction for a $2400 donation, even though they only donated a vehicle worth $500.

The IRS noticed that this was going on, so they decided to change the law so people receive a tax deduction for the actual value of the car. Now, if someone donates a car to a charity, he receives a tax deduction only for the amount of money the car sells for in an auction. This is often much lower than the Kelly Blue Book price. This means that currently if someone donates a car that is valued at $2400 per the Kelly Blue Book price, but it only sells for $500 in an auction, the tax deduction received is only $500.

Let’s imagine a person who is in the 30% tax bracket. He has a car that is valued at $3000 in the Kelly Blue Book, but it has a bad motor and some light body damage. Because of the problems with the car, it would sell at auction for only $700. Before the law change of 2005, this person would have saved $900. Today, he would save only $210. Instead of donating his car and saving $210 on taxes, he could sell the car and receive $700 cash.