Last year’s tax laws hurt local nonprofit’s fundraising efforts

WASHINGTON (Map, News) - The allure of a tax write-off will get many Washingtonians to send last- minute donations to charitable organizations in the remaining weeks of 2006. But while local nonprofits will see a spike in cash, clothing and other goods, many are still reeling from tax laws put into effect last year that made it more difficult for would-be givers to donate their car.

Many area nonprofits raise thousands or even millions of dollars each year by auctioning off donated cars. But new requirements instituted by the Internal Revenue Service in 2005 lowered the tax write-off for the majority of people who donated a car. Instead of deducting the fair market value of the car — which was the previous rule — donors can only deduct the amount that the car sold for at auction, meaning the deduction could be significantly less than anticipated.

“It certainly hurt us because we saw our revenues drop by a couple hundred thousand dollars,” said Brendan Hurley, senior vice president of marketing and communications for Goodwill of Greater Washington.

The organization expects to accept about 150 cars this year, down from about 250 in 2004.

The new rule was the IRS’s “way of making sure you’re not inflating the value [of the tax deduction],” said Sandra Miniutti, vice president of Charity Navigator, a Mahwah, N.J.-based organization that tracks the financial health of the countries largest charities. “But any charity that offers these kind of donation opportunities will be savvy enough to walk you through the process.”

While Goodwill’s car revenues only represent about 1 percent of their total fundraising efforts, other local charities leaned on the donations much more. Melwood, an Upper Marlboro-based nonprofit that provides job training for people with developmental disabilities, lost millions in revenue as a result of the new rule.

In 2004, Melwood brought in about $12 million from the sale of 27,000 cars. Last year, that number fell to $6.8 million and 17,000 cars.

Most charities have turned to diversifying their fundraising efforts to make up for the lost revenues. Melwood added a charity golf tournament to its 2007 line-up.

For those who still want to donate their car, nonprofit analysts suggest giving it to a charity such as Meals on Wheels that will use it rather than auction it off. In those cases, donors can deduct the fair market value of the car.

“That would be the ideal situation,” said Daniel Borocoff, president of the American Institute of Philanthropy, a Chicago-based charity watchdog group. “That way you don’t have to worry about what it gets sold for and you can feel good that it’s getting used.”

kwilmeth@dcexaminer.com

Advertisement