Car donation: no deduction if sold "for parts" by the charity?

We recently donated a car with a private sale FMV of around $1700. The charity (Special Olympics) sent a 3rd-party shop to pick up the car; they gave us a 'provisional' receipt (Form1098) for $500, and told us that they would send us the adjusted one once the car sells. We just found out from them that they have decided to sell the car "for parts", and they claim that this means we cannot deduct any more than the value of $500 already on the temporary 1098 which they gave us when they picked the car up.

Is this correct? I have looked at the IRS publication 526, and cannot find any special rules governing value in a "for parts" sale. We are feeling very screwed at this point -- the shop has our car and title, and we're only getting the deduction of $500 (which translates to probably $200 in our pockets). We feel like the car has essentially been stolen from us.

Is the only solution here to never donate a car? Anyone else have any similar experience? Advice? Thanks.

I suspect they only got $500 (or less) for the parts. Otherwise they would give you a 1098-C showing the amount they received.

They would be inclined to do so because a) they are required to and b) it is generally in their best interest to keep donors happy by providing them with the larger tax deduction.

Of course there is the possibility that they were too lazy to account for it.

Welcome to the real world of car donations. The law changed a few years ago so that you could only deduct the true value of the car instead of claiming an inflated value as many tax filers used to do. The charity usually gets cash from sale of the car, whether as a used car or as salvage parts. They pay the company some fixed percentage and you get a receipt for the actual value that the processing company obtained. Nobody is getting cheated unless fraud is involved.

I'm sorry to hear about your "surprise." Missed expectations suck, don't they?

In general, unless the car is very new, they will sell it as scrap. The trouble involved with finding a buyer for a $1700 car, or even a $5000 car, is not worth it to the charity. A scrap buyer will always take a car, and fast.

We donated our truck, which ran well, and only got a $500 deduction. But we didn't feel bad about it. It also helped that when we went to the charity, they warned us that most of the donated cars are scrapped, unless they are really new or classic.

If your goal was to help the charity, then you have, and you can justly feel good about it. However, if your goal was to get the best personal return for your car, it would have been better to sell the car on craigslist yourself, and optionally, donate all or part of the cash proceeds to a charity. That's a little more work, of course.

Your $1,700 car may be the price a used car dealer would get for it on a lot after it was detailed out and with an up to date smog clearance but not what it was worth as is. Go to Kelley Blue Book on the net at kbb.com and check out the differences in value between dealers, private party sales and trade ins in various conditions.

If the issue comes up again, consider selling the car yourself and giving the cash to the charity.

I have given two parts cars to charity and was sufficiently happy just to have them take them off my hands.

I volunteer in a car donation program. We distribute 80% of the cars we receive to low income families, so the donor can take the private FMV.

However, we are sometimes given a car the donor says is in good shape, but our volunteer mechanics discover that the frame is rusted out so the car is not safe and not worth repairing, or there are multiple major mechanical problems the donor wasn't aware of (or chose to ignore). Those we junk. That is fairly rare, because usually the donor knows the car and is honest about its condition. We also get cars the donor knows we are junking (selling for parts).

The rule is that if the charity sells the car, you get what they sold it for as a deduction, no matter whether the sale was for junk, at auction, or to someone in a private party deal, and the charity must tell you the amount if over $500 and you want to claim it.

All that said, I have the impression that charities that get donated cars for fund-raising purposes tend to be more concerned with getting the money fast than with getting the most possible money.