Tax reform kills used car donations

The 10 September Wall Street Journal, page D3, reports that far fewer people are donating their automobiles to charities after the tax laws were changed so that donors could only deduct the sales price of the automobile after the charity sold the car, not the book value. In 2004, under the old rules, 901,000 taxpayers claimed the deduction for a total amount of $2.4 billion, while in 2005 under the new rules, 297,000 people claimed the deduction for a total amount of $470 million, a two billion dollar difference. This tax law change came about in part because large U.S. companies were donating patents to universities, and similarly claiming large values for the patent (see the relevant post), even if the recipient did nothing economically with the patent. Under the new tax law, companies donating patents can only deduct whatever the recipient earns from the patent, much like with the automobile deductions. And I suspect much like the automobile deductions, there has been significant drops in the number of companies claiming large deductions for their donated patents. In both cases, the taxpayers were being scammed.