The biggest inducement for donating car is from the tax deduction and the charity that uses this donation obviously benefits in many ways.
The IRS was allowing donors to deduct the "fair market value" of the donated car from their taxes. So donating a car whose market value was $3000 resulted in $990 off of your taxes (assuming a 33-percent tax bracket).
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More than a million Americans donated their cars this way every year.
Unfortunately, many car donors have been deducting the full "suggested retail price" which is what a dealer would get for reselling your trade-in , instead of the fair market value.
That's far more than the IRS had intended and this was costing the government millions in lost tax revenue.
The charities weren't making much either because most of the donated cars were sold by the charities at auctions for very little, and middlemen who administered the programs on behalf of the charities took a large percentage of those meager profits.
In 2005 the IRS changed the rules. Beginning in 2005 if your car is valued at more than $500, the deduction is limited to the charity's actual selling price.
The donor must attach a statement of sale to the tax return in order to receive the deduction.
The charity is obligated to provide the statement within 30 days.
You are not entitled to know the deduction amount before donating your car.
Donations through commercial fund raisers that give a percentage of profits to their charity members has gone down as much as 30-35 percent for some after the new law went into effect.
Also, overall profits have dropped a full 50 percent, as owners of "higher-value" cars (anything more than $2,000-$3,000) stopped donating their cars.
Since the average car that is received for charity is valued at only $250-$300, cut backs in overhead and expenses had to be made to maintain these non-profit business.
