Charitable Gifts: New Rules

The Pension Protection Act of 2006 changed the rules for deducting charitable contributions. You need to know these rules or contributions that were deductible in the past will not be deductible on your 2007 return.

Cash donations. It used to be that for cash contributions of less than $250, you did not need a receipt or documentation. All you had to do was keep a log or some other notation of the contributions. That isn’t good enough any more. Now the contributions must be backed up with a bank record or a written communication from the recipient. The dollar amount no longer matters. That means you cannot deduct cash contributions, such as dropping a few dollars in the church collection plate, without a receipt. At a minimum you need cancelled checks or a letter or receipt from the charity. No paperwork means no deduction.

Property gifts. Normally the deduction for a gift of appreciated tangible personal property is the fair market value. Now, that amount can be deducted only if the recipient uses the property for its exempt purpose for three years following the gift. If that condition is not met, the donor deducts only the adjusted basis of the property. This rule applies to gifts such as art and antiques.

Deductions of clothing and household items also face a new rule. A deduction is allowed only for donations of such items that are in good used condition or better. The IRS has not issued regulations on this issue yet, but it can conclude that some clothing or household items are not deductible at all. The “good condition” requirement can be avoided by filing a qualified appraisal with the tax return. An appraisal also is required for charitable contributions of items when the claimed deduction is more than $500.