New Law Attacks and Changes Many Charitable Deductions

Benjamin Franklin said, “In this world nothing can be said to be certain, except death and taxes.”  We agree – with one modification: Death does not get worse when lawmakers get together.

The lawmakers did it again!  They made taxes worse!  With the new pension law (P.L. 109-280), claiming a charitable contribution just got more difficult and more demanding.  This article gives you the details and explains what you need to do now regarding the

• new rules on receipts for charitable deductions;
• new, stiffer rules on charitable deductions for clothing and household item deductions;
• new, lower thresholds that increase the chances that you, your estate, and your appraise could face penalties if appraised values are too high or too low;
• new disallowance of safari, travel, and other costs of hunting, killing, and stuffing animals to produce charitable deductions;
• new rules that change the requirements for donating a historic façade easement; and ,
• New rules on recapture of certain fractional-interest charitable donations.

New Rule on Receipts for Charitable Contributions

To prove a charitable contributions cash donation made after August 17, 2006, you must have a bank record or a written communication from the recipient that shows the

• name of the organizations, date  of the contribution, and
• amount of the contribution.

Example.  You go to church on September 17, 2006, and and put $5 in the collection basket.  You get no deduction for this cash contribution because you have neither a cancelled check nor a receipt.

New Stiffer Rules on Charitable Deductions for Clothing and Household Item Deductions

Beginning August17, 2006, your used socks and underwear will no longer have value as charitable donations if lawmakers have their way with the IRS.  The new law instructs the IRS to dream up regulations that deny deductions for clothing and household items that have minimal value.

Lawmakers expect the IRS to work with charities to “assiduously” (the lawmakers’ word) disallow deductions for low-value clothing and household items.  In other words, lawmakers instructed the IRS to “tirelessly be undeviating in its effort to disallow” your used socks, used underwear, and other low-value clothing and household items.  Further, the law explicitly requires the IRS to disallow charitable contributions of clothing or household items not in good or better condition.

The more than $500 exception.  If you claim a deduction of more than $500 for a donation of a clothing or household item not in good or better condition, the new law allows a deduction to you, the taxpayer, when you include with your tax return a qualified appraisal with respect to that item.

You have to wonder what prompts lawmakers to go after your used socks and underwear.  The answer is cash.  Clothing and household item deductions totaled more than $9 billion in 2003.  The government wants that money.