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Car Donations Could Take Your Clunker to the Crusher or Cambodia

Marcia Biederman
Thursday, 20 Dec 2012 | 12:37 PM ET
Diane Macdonald | Getty Images

Thinking of converting your clunker into an end-of-year tax deduction? Then hear the tale of my family's 1997 Mercury Sable, which we donated to the Juvenile Diabetes Research Foundation in August, when the engine gave out at 107,000 miles.

Four months after our car was towed away, my husband received a letter from the charity that would allow us to take a tax deduction. In the meantime, I was surprised to discover that the Mercury was being advertised for sale on a Web site called crashescars.com. The home page promised "cars from USA," with text translations in Polish and other Eastern European languages, and a section answering queries from prospective car buyers in Iraq and Cambodia.

The crashescars ad showed photos of our car, described as having mechanical damage, an engine that started and a clear title. Indeed the title had not been transferred to anyone, which I discovered by searching the VIN on the National Motor Vehicle Title Information System, so the car had not been branded as salvage.

The marketing of our old beater to potentially nave customers made me uneasy. One of its cylinders had lost compression, catalytic converters were possibly damaged and the dealer estimated the cost of a new engine at $4,800. Yet an upbeat ad actually served my interests, as well as those of the charity. A good price for the car would have increased our contribution to the foundation and hence our tax savings.

A decade ago taxpayers were allowed to deduct the fair-market value of a donated car. But tax rules changed in 2005 after Senate hearings on donors who had wildly overstated values. Thus our deduction would be limited to $500 unless the car actually sold for more.

I was curious to see what price our jalopy would bring. I was also eager to get an acknowledgment of the donation for my tax files. We had donated to the foundation through a contractor, Car Program of Rancho Cordova, Calif., which arranges pickups of cars for many charities on its Web site, DonateACar.com. In exchange for the title, my husband had been given a tow receipt and told that the charity would send a donation letter.

Ninety percent of car donations nationwide are handled through third parties, like Car Program, said Gary Curto, the Juvenile Diabetes Research Foundation's tax and regulatory compliance manager. The foundation gets 70 percent of the vehicle's net proceeds after deductions for expenses, or roughly half the sales price. "Forty-five to 55 cents on the dollar is typical," he said.

The tow receipt was from Insurance Auto Auctions of Westchester, Ill., one of the nation's largest vehicle auctioneers. After coming across the carcrashes ad, I called Insurance Auto Auctions in late November, wanting to know the chances of its selling for more than $500.

A spokeswoman for the company said she would get back to me. Soon after, the car vanished from the carcrashes site. Again, I entered its VIN into the National Motor Vehicle Title Information System. This time, a report studded with warnings told me it had been sold as scrap to a recycler. Now, the title was branded as salvage, meaning that repairs would cost more than 75 percent of the car's value.

That, of course, was also true when the car was being marketed abroad with a clear title, and the vehicle-history carried no warnings.

The recycler paid $325 for the Sable, according to Car Program. The diabetes foundation sent me a letter for the $500 deduction, which we're entitled to take although the charity probably netted only about $162.

Presumably, my clunker also turned into cash for the middlemen: Car Program, which says it has worked with 1,800 nonprofits, and Insurance Auto Auctions.

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  • A reporter and editor, Robert Frank is a leading authority on the American wealthy for CNBC.