New tax rules take bite out of vehicle donations

Dave Pifer auctions vehicles while Lester and Mary Calendar browse the Volunteers of America lot. A decline in automobile donations has especially hurt the Volunteers of America because its other funding sources have remained flat for years.

Almost a year after the federal government put the brakes on excessive tax deduction benefits for donating vehicles to charity, some area agencies that got a lot of mileage out of such gifts are seeing a significant slowdown in donations.

Until the end of 2004, donors were able deduct the Kelley Blue Book value of vehicles they donated to charity on their tax returns. But a change in federal law this year - part of the American Jobs Creation Act of 2004 - now allows donors to claim only the actual price charities receive when they sell most donated vehicles.

The change was designed to close a loophole and could save the federal treasury some $4.8 billion in tax refunds in 10 years.

Charities worried that donations they rely on to help fund their activities would decrease, and federal tax collectors worried about last-minute free-wheeling by taxpayers on their 2004 returns. Both concerns, as it turned out, were founded.

"Just because the rules will be tightened for vehicles donated next year doesn't mean anyone should give a car to charity and claim an inflated value this year," IRS Commissioner Mark Everson said in a November, 2004, statement.

Just after that announcement, a funny thing happened at Toledo's Volunteers of America chapter, which takes in more donated vehicles than any other charity in northwest Ohio. In the last month of 2004, the group received 380 vehicles - a 53 percent boost over the 249 they took in during December the year before.

Vehicle donations this year have dropped sharply, said Sue Reamsnyder, chief executive officer of Volunteers of America. The first five months of the organization's fiscal year, which started in July, have brought only 266 vehicles, compared with 369 last year.

Capt. Harry McElwee said vehicle donations to the Salvation Army of Northwest Ohio have declined by about 25 percent this year, but he could not provide exact numbers last week.

But it's not so much the number of vehicles that worries Ms. Reamsnyder; it's the individual value of each. Too many of the vehicles the agency is receiving now are clunkers, she said.

"Older cars, beat up cars, cars that won't start," Ms. Reamsnyder said. "We don't even know if we'll break even and make a profit."

Last year, about 1,100 vehicles brought the Toledo Volunteers of America $528,000, which equated to about $100,000 in profits after advertising, staff, and towing costs.

This year's vehicles have been worth a total of $109,000 so far. By comparison, if things were going like they had been last year, they'd be flush with $231,000 right now.

One reason for the rise in clunkers may be that the federal tax law changes only apply to vehicles worth more the $500.

But Ms. Reamsnyder said it's apparent to her that people are not aware of another aspect of the law - a loophole that would allow them to retain deductions at the old rates.

If her agency auctions or sells a vehicle to a person below a certain income level - someone who would qualify for Section 8 housing - then the donor could claim full Blue Book value for the vehicle, rather than the amount for which it was sold.

Another possible factor in the Volunteers of America program's decline may be increased competition: At least one other area charity has decided to rev up its own vehicle-donation program.

Amy Wachob, retail operations director for Goodwill Industries of Northwest Ohio, said she's seen donations double- from about 75 in 2004 to 150 this year - since the agency began advertising, offering free towing services, and went into the auction business this year for the first time. Goodwill will have its first automobile auction in January.

Ms. Wachob said the vehicles she's seen have been of similar value to last year and expects to turn a profit, but she said she did not have hard numbers.

Bill Kitson, president of the United Way of Greater Toledo, noted that car donations provided "unrestricted dollars" - money that could be applied toward any area of an agency - at a time when nonprofit groups are increasingly beleaguered with strings and accountability from more and more of their funding sources.

"Those dollars are the most valuable in this highly competitive [nonprofit] market," he said.

The decline in donations has especially hurt the Volunteers of America because other funding sources have remained flat for years, Ms. Reamsnyder said. The profit garnered from the automobile program always had been shifted to combat other shortfalls. Last year's vehicle donations provided more than 12 percent of the agency's $4.5 million budget. "That program was so valuable to us. Now, I don't know," she said.

Even if the Volunteers of America program does not turn a profit, Ms. Reamsnyder said she will keep accepting donated vehicles.

She said it's a good way to ensure that low-income residents served by her agency have a chance to own a car.

IRS spokesman Chris Kerns said his agency would not have any statistics on this year's vehicle donations - and related deductions - until after tax returns are filed early next year and processed.

Contact Tad Vezner at: tvezner@theblade.com or 419-724-6050.