Nonprofit organizations are reporting sharp declines in donations of used cars this year in the wake of a new tax law designed to prevent donors from artificially inflating the value of the deductions they receive for such donations, the Wall Street Journal reports.

Previously, taxpayers who itemized their deductions could deduct the fair-market value of a car donated to a qualified charity. The new law, which took effect January 1, generally limits the donor's deduction to the vehicle's actual selling price when the nonprofit sells it. The rule only applies to cars whose claimed value is more than $500, as well as to boats and airplanes.

Congress made the change after discovering that many charities were selling donated vehicles for a small fraction of the value taxpayers had placed on them. According to a 2003 report by a congressional investigative unit, about 733,000 tax returns for the year 2000 included deductions for donated vehicles — deductions which cut taxpayers' income-tax liability by about $654 million. The report also found that some 4,300 charities with annual revenue of $100,000 or more were operating vehicle-donation programs.

The new law "has already had a major impact" on charities, said Diana Aviv, president and CEO of Independent Sector, a Washington, D.C.-based coalition of philanthropic organizations dedicated to strengthening the nonprofit sector. Aviv added that some charities had reported decreases in vehicle donations of 35 percent to 45 percent. Groups reporting such large declines included Volunteers of America and Goodwill Industries in Pennsylvania.