Tax change drives away donations of vehicles – This is really a misleading description of the change in the law. It doesn’t eliminate the ability to claim the market value of vehicles. It just tightens up on what can be used to determine what exactly that market value is. As I’ve discussed on several occasions, people were claiming completely bogus values for their donated vehicles when they knew full well that they could never have sold them for those prices. This new law just makes it mandatory that the actual sales prices be used.

I offend professional appraisers every time I get into this area; but it is a fact that appraisals are no more than guesses of an asset’s value. A real bona fide sale on the open market is a much more reliable number to use. If the Kelly Blue Book says that a car is worth $5,000 in tip top condition, and the car can only be sold for $1,000, the only number I would trust as accurate would be the actual sales price.

As I’ve said many times before, this is not technically a new change in the law. It is just tightening up the valuation method because of the widespread abuse by so many people, as well as the various services that had popped up to receive donated vehicles and give part of the sales proceeds to actual charities by promising much larger deductions for people than they could get from actually selling the vehicles themselves. If these services go out of business, so what?

As I’ve long told clients, highly appreciated assets are good candidates for donation to charities. With depreciated assets, such as vehicles, it’s most efficient financially to just sell them and donate the cash. You then don’t have the issue of appraisals and follow-up sales prices to even worry about.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/31/2005 10:15:00 PM Send this post: