Automobile donations have sharply declined since 2004, when Congress tightened the tax rules for claiming charitable deductions, according to an analysis of IRS data by Grant Thornton.

Before 2005, taxpayers who donated a vehicle were allowed to deduct its fair market value. Tax legislation enacted in 2004 changed the rules to generally limit vehicle donation deductions of over $500 to either the actual proceeds from a vehicle's sale or the vehicle's fair market value, whichever is less.

Recently released IRS statistics reveal the 2004 law had an immediate and drastic effect on car donations. An analysis of the new numbers by Grant Thornton's National Tax Office shows that between tax year 2004 and 2005, car donations of over $500 dropped by two-thirds.

Over 900,000 tax returns claimed deductions for donated automobiles in 2004. In 2005, the last year for which the IRS has detailed data, less than 300,000 tax returns included such claims. The total amount deducted for all car donations declined from $2.4 billion in 2004 to just a half a billion dollars the following year, a decrease of over 80 percent. The deduction claimed per donated car declined by 41 percent.

Donations of vehicles besides automobiles also declined. The number of returns claiming non-car vehicle donations dropped over 25 percent from 2004 to 2005, and the amount claimed in deductions fell from $205 million to $140 million.

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