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You might not get as much if you donate the clunker next year
by Tom Scheck, Minnesota Public Radio
November 24, 2004

Brooklyn Park resident Jim Hoffner donated his car to the American Lung Association of Minnesota. (MPR Photo/Tom Scheck)

Donating your car to charity may not be an attractive tax deduction. A change in federal law mean that people who donate their cars will probably not be able to deduct as much after New Year's Day. Congress made the change because it was concerned that people were taking advantage of car donation programs. Several charities worry that the changes may lower donations and in turn reduce money to their organizations.

St. Paul, Minn. — Brooklyn Park resident Jim Hoffner could serve as a model for those who donate cars to charity. Hoffner bought a new car and decided that he wanted to help the American Lung Association of Minnesota. He lost both his parents to lung cancer so he's passionate about lowering smoking rates around the country. Hoffner decided to donate his 1993 Nissan Sentra to the American Lung Association so it can resell it and use the proceeds to help reduce smoking.

"It gives them the opportunity to use the value of that car to help them do the things that they do to push this issue," Hoffner said. "We believe it's a very important issue."

Hoffner says he didn't donate the car for the tax deduction on this federal taxes. But he intends to take it. Lots of people donate their cars for the tax break. So many so that Congress became concerned that donors were taking unfair advantage of the program and were deducting too much from their taxes.

	Rose Adams

Until January 1, you can deduct the fair market value of your car. After that date, you can only deduct what the charity gets when they resell the car. Because so many cars are sold for less than fair market value, Bob Moffitt with the American Lung Association of Minnesota says it's possible that some people may decide to forego car donations next year.

"We're changing the focus from getting the tax break from really helping out an organization that does a lot of good things in this state," Moffitt said. About 20 Twin Cities charities rely on car donations as a source of income. The Courage Center has been especially effective. The charity helps people with disabilities lead healthier lives. In 2003, the Cars for Courage program generated $1.3 million in net contributions. The Courage Center's total annual budget is $33 million. The Courage Center's Rose Adams says she expects a small rush of donations between now and the end of the year from people who intend to maximize their tax deduction.

"I think we'll probably see some increase to that as people will get their vehicles in because they can take fair market value," Adams said. "I think it's the uncertainty of not knowing what they might be able to claim as a value. We're going to try to do everything we can to still make it a tax benefit for people."

"We're changing the focus from getting the tax break from really helping out an organization that does a lot of good things in this state." - Bob Moffitt with the American Lung Association of Minnesota

Adams says they intend to continue their car donation program even if there's a drop off in donations. In fact, they have plans to make improvements to some donated cars to help increase the resale value.

Some say the tax law changes will have a chilling effect on contributions. Melissa Stone is the chair of the Center for Leadership of Nonprofits, Philanthropy and the Public Sector in the University of Minnesota's Humphrey Institute. She says the tax law changes were warranted because too many people were taking advantage of the deduction. Stone predicts that charities like the Courage Center will still run an effective car donation program. But she says smaller, lesser known charities may have to focus on other types of fundraising.

"This may really discourage the nonprofits that are relatively new to this kind of strategy," Stone said. "It may discourage them from pursuing it whereas the well established non profits like the Courage Center, that have done this over several years, will be able to continue it in a fairly sustainable way."

Stone says the changes to the car donation programs signify a much larger trend. More and more often government watchdogs and the public are scrutinizing the fundraising activities of non-profits.

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