Cutting Back on Charitable Incentives: The Case for Automobiles

With Congress and the President seriously considering proposals to reduce various tax subsidies, the charitable deduction has come into play.  As opposed to proposals that cut back on giving across the board, it may be worthwhile to consider other alternatives.  This short note indicate some evidence on what happened when Congress recently cut back on allowances for donations of automobiles because of perceived abuses.

In 2003, a GAO study found suspiciously large unsubstantiated deductions for donations of vehicles to charity.  In response to evidence that donors were claiming well in excess of the value of these deductions to charities, Congress in 2004 limited the deduction for vehicles worth over $500 to the charity’s actual selling price of the vehicles.  It also required donors to attach a statement of sale indicating that it was “sold in an arm’s length transaction between unrelated parties” or a written statement that the charity would use the donated car in its programs.  Higher deduction amounts were still allowed for charities that used the vehicles directly, as opposed to selling them.

The graph below shows that tax deductions claimed for vehicles fell sharply after enactment of this law.

Source: Gerald Auten, Department of Treasury.

For more information on noncash contributions generally, see “Noncash Charitable Contributions: Issues of Enforcement” which includes postings on noncash charitable contributions, an area worth $44 billion to nonprofit organizations in 2010.

2 Comments on “Cutting Back on Charitable Incentives: The Case for Automobiles”

  1. This reminds me of those taking the child exemption until SSNs were required.

  2. […] November 30, 2012; Source: The Government We Deserve […]

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