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Let The Clunker Go To Charity

May 12, 2008
Vehicle charity is a widely successful project to raise funds for charity and to provide an avenue for citizens to show charity towards strangers.

Instead of selling, trading or storing a clunker or any old vehicle, a better and more productive way of disposing of old vehicles is by donating them through accredited organizations for the benefit of charitable institutions. This way, the owner isn't just letting go of an obsolete vehicle but also helping other people.

Since 1995 when the vehicle charity programs were begun, many charitable organizations, both big and small, have benefited from the program. Such movements were very popular at the time.

Many believed, support and trust in the wisdom and mechanisms of vehicle charity. The trust has been maintained for 5 reasons. First, the owner of the vehicle is relieved to find an inexpensive way to get rid of his car. Second, arranging for repairs on the body when the car is being sold is definitely too expensive and impractical. Third, the vehicle won't need to pass a smog test. Fourth, the outdated vehicle could not anymore be trusted to be safe on the road. And fifth, a tax write-off would be helpful and needed.

People who are interested in helping out the charity can donate any unused car, boat, RV or any vehicle. To make that donation, the title must transfer hands as well. In the case that a lien has been placed on the vehicle, the one who holds the lien has to provide the owner with a document stating that the lien has been lifted and need not be honored.

Once the donation has been made official, donated vehicles, are picked up by affiliate organizations to be sold later at a public auction. The money made for the vehicle at the auction goes towards a charity that is either part of the donation program, or to a charity of the owner's choice.

The tax write-off benefit to the donor comes into play when the subject vehicle is for the benefit of a non-profit charitable institution with tax exempt status. For donated vehicles valued more than $500, the deduction is limited to the amount properly realized inn the auction sale. If the vehicle valuation is below the $500 threshold, write-off may be allowed to the extent of the vehicle valuation not exceeding $499, regardless of proceeds realized at the auction sale. Moreover, the write-off is allowed only against the donor's income tax payable.

The above discussed rules on the tax write-off are the existing rules established by the IRS in 2005 to circumvent the earlier practice of having the full suggested retail price or valuation tax deducted in all cases. That practice caused the Government to lose millions in tax revenues.

Questions have, therefore, been raised as to whether the tax deduction aspect of the charity vehicle mechanism remains to serve a premium for a host of donors with vehicles more than the threshold valuation. Answers seem to be in the affirmative since there remains under the existing rules sufficient mechanism to recover through tax deduction the full valuation of the vehicle to be donated such as by donating the vehicle directly for use by a charitable institution.
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