Pension Protection Act of 2006 –- Charity Provisions

Here is an overview of some of the Charitable Contribution changes made by the Pension Protection Act of 2006:

• New restrictions on deductions for donations of clothing & household items. For all donations of clothing & household items made after August 17, 2006, you are only allowed a tax deduction for the fair market value of items that are "in good used condition or better." - IRC Sec. 170(b)(16)(A). Of course, there is no official guidance about what constitutes "good" condition. The new law also leaves a trap door by stating that the IRS "may by regulation deny a [tax] deduction... for any contribution of clothing or a household item which has minimal monetary value." - IRC Sec. 170(b)(16)(B). This provision was enacted to reduce the amount of deductions taken for items of little monetary value such as used socks & undergarments. Neither of these requirements apply to any single item worth more than $500 for which you have a qualified appraisal. So even an item that is not in good condition can be potentially be deductible if you have it appraised.

• Increased recordkeeping requirements on monetary contributions of any amount. Starting in 2007, the new law disallows the charitable deduction for any monetary gift (cash, check or credit card) for which the donor does not have a satisfactory record of the contribution. This applies to gifts of any amount--no minimum! Satisfactory records can be:
• a cancelled check;
• a receipt from the charitable organization showing their name, the date of the contribution, and the amount of the contribution; or
• other reliable written records showing name, date & amount (such as a credit card receipt or statement with charity's name).

Read a detailed summary of charitable provisions of The Pension Protection Act of 2006.