If You Donate Your Clunker


Donate your car to charity and get a tax deduction. That sounds like a win-win situation, right? But if you've already donated your vehicle for 2002, or are considering doing so, the U.S. General Accounting Office, has some caveats.

-- Do not assume the charity is arranging to take title to the vehicle. To avoid future liability for parking violations and accident damages, take personal responsibility for transferring ownership.

-- Make sure you know how much the charity is going to get. In recent testimony before the Senate Finance Committee, the GAO said groups often hire fund-raisers to solicit and process the donations. In many cases, the fund-raiser auctions the car for a price below market value and takes off commissions and expenses. The GAO cited the case of a truck for which the owners claimed a $2,400 deduction. After the fund-raiser sold it at auction for $375 and deducted expenses, the charity received $31.50.

-- Estimate the "fair market value" you are allowed to deduct. Determine the worth of the car as if you were selling it to a private party. Use a source such as Kelley Blue Book (kbb.com) or Edmunds.com, which factors in condition, mileage, and optional equipment. Take snapshots to justify your assessment of the car. (Deductions greater than $5,000 require a professional appraisal.) A strong incentive to do this, says the GAO, is an Internal Revenue Service program in which tax returns that report noncash charitable contributions may be flagged for audit.

By Ellen Hoffman

    Before it's here, it's on the Bloomberg Terminal.