'Tis the (last)Season to Give that Old Car to Charity and Save Taxes

Better Do it Quick - 'Cause the Grinch Is Closing the Tax Deduction Loophole on December 31

ALEXANDRIA, Va., Nov. 10 -- There's a reason so many charities have gotten into the car donation business the last couple years. To be blunt, consumers realized they could give away a clunker and reap a fat tax write-off come April.

(Logo: http://www.newscom.com/cgi-bin/prnh/20031009/LATH011ALOGO)

Rather than sell a beater -- and take a financial beating -- many people figured out the tax deduction was worth more to them than any actual cash they might be able to recoup. Well, the IRS figured that out, too. One government study showed that some charities had received -- in cash -- only about 10% of what taxpayers wrote off for the donation.

Come 2005, new rules will come into effect. In a recent article on the Web site of American International Automobile Dealers Association (www.aiada.org), Editor Frank Giovinazzi explains the situation and shows the wisest way to estimate deductions. After January 1, when a vehicle is donated, the taxpayer will only be able to deduct the amount the charity received for the vehicle. Charities will be required to sell the vehicle first -- either directly or at auction -- and then report the sale price back to the donor.

This new system is certain to put a damper on donations, as well as a revenue stream for charities. For the next eight weeks, however, cars can be donated and the fair market value can be deducted. If the vehicle is worth more than $5,000, the taxpayer must supply a written appraisal with their tax return.

There is a caveat in this as well. Because the IRS is tuned to the problem, it is highly advisable to deduct only what is considered the "fair market value" for the vehicle, as opposed to the "Blue Book" value.

Here is a case when government language means exactly what it appears to mean. "Fair market value" is defined as the dollar amount for which the vehicle can be sold to another party.

To determine a real-world selling price, Edmunds.com (http://www.edmunds.com/) has a calculator on their site, known as True Market Value (http://www.edmunds.com/products/tmv/learn.html), that draws from industry transaction reports to provide an accurate snapshot of what a particular vehicle is worth.

The difference between Edmunds' "True Market Value" system, and Kelley's Blue Book pricing is brow-raising -- and may save taxpayers returns from getting flagged by the IRS for inflating their deduction.

For example, when identical information for a 2002 Saab 9-3 was entered into both calculators, the price difference was over $3,000. Kelley's Blue Book estimate was $18,035; Edmunds' "True Market Value" was only $14,960.

Bob Kurilko, VP of Communications for Edmunds, urges potential donors to use his company's numbers, because they "represent a now price," that is updated continually throughout the year.

"Our True Market Value price is what the vehicle is actually selling for," Kurilko said. He added that the Kelley estimate is traditionally used as a starting point in the sales process -- although, unfortunately, some consumers wind up paying full "Blue Book" value without negotiating.

After the rules change on January 1, the Edmunds' calculator can still be used by potential donors, if only in a financial planning role. When deciding whether or not to donate a vehicle, the True Market database can provide an accurate number to decide whether it is more advantageous to donate the vehicle -- in anticipation of the charity's sale -- or simply sell it outright and do something else with the money.

For more information, see the following IRS Publications: http://www.irs.gov/pub/irs-tege/pub4303.pdf and http://www.irs.gov/pub/irs- tege/pub4302.pdf.

About AIADA:

Founded in 1970, AIADA represents the 10,000 American automobile dealerships that sell and service international nameplate brands including Acura, Aston Martin, Audi, Bentley, BMW, Ferrari, Honda, Hyundai, Infiniti, Isuzu, Jaguar, Kia, Land Rover, Lexus, Maserati, Maybach, Mazda, Mercedes, MINI, Mitsubishi, Nissan, Porsche, Rolls Royce, Saab, Scion, Subaru, Suzuki, Toyota, Volkswagen and Volvo. These retailers have a positive economic impact both nationally and in the local communities they serve, providing nearly 500,000 American jobs. Visit AIADA online at www.aiada.org.