As the popularity of car donations increased in the early 2000s, the IRS became concerned that taxpayers were often overvaluing such donations and charities were receiving very little revenue. According to a 2003 report by the Government Accountability Office, a 1983 donated truck sold for $375, provided the donor a $2,400 tax deduction and funneled just $31 to the charity that the transaction was intended to benefit! The IRS tried to crack down on these abuses in 2005 via a new federal law that made it more difficult for donors to inflate the value of their cars in order to get bigger tax breaks. As a result, car donations declined 78% from $2.6 billion in 2004 to $573 million in 2008.
Concerned by this drop in charitable income, the Chronicle of Philanthropy reports that some lawmakers want to ease up on the law. Whether or not that happens remains to be seen. So taxpayers that are claiming a deduction for making a car donation should continue to be very careful in how they value their deductions. We offer tips on our site to help you make an accurate claim.