Why Are Regulators on the Neck of People Who Donate Cars for Tax Credit?


Donate Cars for Tax CreditWhy Are Regulators on the Neck of People Who Donate Cars for Tax Credit?

It’s been a common practice for people to donate cars in states like California, and most of them do this for the purposes of enjoying one tax benefit or the other, and to run away from the costs of selling the car. Now, a friend of mine wrote that his 1998 Honda car is still running perfectly, and he wants to sell it. But the dealership where he is shopping for a new car is willing to accept this only at $100. However, this is a car that could have amounted to a deduction of $3,350 from his taxable income had he donated the car some years back. The simple meaning is that if he got about 33% in tax rate, he would have saved about $1,117 in taxes.


Now, the mathematics here is that if this car donation is made through a liquidating firm, they would have probably given about 10% and above to a nonprofit, and this means about $150.

When you look at it, you will realize that the meaning is that the government will be allowing the donor to get away with about $1,117 in taxes, while the non profits in turn gets about $150. The liquidators probably earn the bulk of the money. Now, while the nonprofit will not worry about this because they are seeing a free $150 dollars into their pocket, the government is losing huge amounts of money in the deal. The area where the government needs to ask a lot of questions is about the activities of the liquidator firm and the donor.

The donors have the habit of penning down very improbable high amounts of their tax deductions, while the liquidator firms on their own give very low percentage of the sales amount to the non profits. This has gotten the attention of the regulators in the industry. While the non profits are supposed to get more than 65% of the entire cost of the car, it is discovered that the de facto condition is that they get less than 7%. This means that the aim of the car donation practice in the USA is completely defeated at this rate. So, the regulators are now out to insure that the right thing is done. Is this not the right thing to do?

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Mr Talkless
Mr Talkless

Noted… I think it is