Charities say new law will deter car donors

By Catherine E. Toth
Advertiser Staff Writer

David Nako is the kind of donor local charities are banking on next year.

John Feil made sure he donated his 1991 Nissan Maxima before tax rules on such donations changed. Richard Ambo • The Honolulu Advertiser

"It's the combination of convenience and charitable intent," said Nako, 45, of Kaimuki, who has donated four cars to charity. "Often times it would be better to just sell it on your own ... But this is for a worthy cause."

Charities are concerned that car donations will plummet next year when new rules governing donations will change.

As of Jan. 1, donors will no longer be able to claim the market value of their car as the value of their donation. They will only be allowed to claim the money the charity received from selling the car. Because the cars are usually sold at auto auctions, where dealers buy them at wholesale prices, the money the charity gets is much lower than the market value.

For example, you donate a 1992 Honda Civic LX sedan in good condition with a market value of $3,170, according to Kelley Blue Book estimates, to a charity. But that charity sells your car for just $800. Under the new rules, you can only claim the gross proceeds from the sale — or $800 — as your tax deduction.

Under the current system, you would have been able to claim the entire $3,170 without an appraisal since the fair market value of the vehicle was under $5,000. (Vehicles valued more than $5,000 have to be officially appraised.)

If the car's market value is below $500, the donor can still claim the market value under the new law. The law was changed to prevent donors from claiming much more than the charity actually receives.

But charities expect the changes will discourage people from donating their vehicles.

"We're concerned, definitely," said Jill Tokuda, director of development at the National Kidney Foundation of Hawai'i, which relies heavily on car donations. "For us and other charities here in Hawai'i and across the country, we're really bracing ourselves for the impact that this new law will have on our revenues that traditionally come from car donations."

More than half of the kidney foundation's annual budget for programs and services — or at least $600,000 — comes from the sale of donated cars.

Now it will have to find a way to convince people that car donations are for more than just the tax write-off but also for support of a good cause.

"We have to create a system that gives donors a comparable tax deduction that they would get under the current system," Tokuda said. "We're hoping to see as little decrease in revenue as possible. But it's difficult to say what's going to happen."

For charities to get close to fair market value for the cars they sell will be difficult, said Anne Deschene, president of the Better Business Bureau of Hawai'i.

Many Hawai'i charities such as the National Kidney Foundation of Hawai'i send their donated cars to Aloha Auto Auction. The auction sells the cars wholesale and charges a sales fee to the charity.

Aloha Auto Auction did not return calls and the charities contacted by The Advertiser would not say how much below market value they typically get for donated cars.

Under the new rules, the charities will have to report to donors the sale price of their car within 30 days of the sale. In addition to being disappointed by the lower tax write-off, some donors may be unhappy that the charity did not get as much as they had hoped.

"The primary concern now for charities is that they won't get (the amount) the donor wished they could get on the donated car," Deschene said.

That, in turn, may deter people from donating vehicles when they can sell them for a higher price.

"I think the new rules will have a tremendously negative impact on charities that benefited from this program," said Coralie Chun Matayoshi, chief executive officer of American Red Cross, Hawai'i State Chapter. "Being able to deduct the fair market value of the vehicle was a big incentive to donors who wanted to donate to a charity and didn't want to hassle with selling their car."

The local chapter of the American Red Cross was planning to expand its car donation program until the new rules were enacted. Now the organization is looking for other sources of revenue.

Nationally, donating vehicles to charity was increasing, according to the Internet Revenue Service. One of every 175 individual tax returns for 2000 claimed a tax deduction for a vehicle donation, the General Accounting Office estimated. These donations were valued at about $2.5 billion.

Car donations accounted for about 4 percent of the Hawaiian Humane Society's fund-raising revenues last fiscal year, totaling $81,519.

The nonprofit has seen a significant increase in donations made from July compared to last year, mostly because of people trying to get the bigger tax deduction before the rules change.

From July 1 to Dec. 20, the Hawaiian Humane Society received 47 car donations, totalling $28,500. Last year during the same period, only five cars were donated for $1,600.

"We're getting daily calls from supporters wanting to make their donations before the end of the year," said Jacque Smith, director of community relations.

John Feil wanted to beat the deadline to donate his 1991 Nissan Maxima before the new rules kicked in. He dropped off his car Thursday at the National Kidney Foundation of Hawai'i, and was able to claim about $4,000 for his donation.

"I know it's for a good cause," said the 52-year-old pharmacist from Makiki. "And trying to sell the car on the open market, well, I'm a busy guy. I don't have the time."

Hawai'i Public Radio accepts car donations, which account for about 2 percent of the station's revenue. It, too, has been swamped with calls, said Bernie Shimono, the station's controller.

"People want to give us their cars before the change," she said.

"We knew the change was coming and that it would be an issue," said Shimono.

"But most of our funding comes from our listeners and it really depends on whether they still want to donate their vehicles or not. It's still a concern."

Reach Catherine E. Toth at 535-8103 or ctoth@honoluluadvertiser.com.