New Law Revamps Tax Rules for Charitable Gifts

The new Pension Protection Act of 2006 includes numerous tax provisions completely unrelated to pension planning. For instance, the new law rewrites some of the tax rules for charitable deductions. Some of the new law provisions favor taxpayers, while others may make it tougher to claim deductions on your personal return.

The following is a brief summary of the key changes in the new law affecting charitable contributions.

Cash donations: Beginning in the 2007 tax year, the new law denies deductions for cash contributions unless the donor has written proof as to the amount of the contribution, the date and the name of the charity. This change appears to give taxpayers no leeway. Cash donations must be substantiated by a cancelled check, bank record, or credit or debit card statements.

Clothing and household goods: Under the new law, deductions for clothing and household goods generally will be denied unless the items are in ?good condition.? However, the new law does not provide a technical definition. This change is effective for contributions made after August 17, 2006.

Food and books: The new law extends through 2007 certain enhanced tax breaks under the Katrina Emergency Tax Relief Act of 2005. These deductions apply to donations of food and books made by business entities.

Conservation easements: The new law raises the deduction limit for qualified conservation easements from 30% to 50% of adjusted gross income if certain conditions are met. This tax break is available only for 2006 and 2007.

Facade easements: The new law imposes special rules for building contributions in historic districts. Furthermore, the charitable deduction of a facade easement is reduced if a rehabilitation tax credit was claimed for the work. Other technical rules may apply.

IRA distributions: Under the new law, the owner of either a traditional or Roth IRA can take tax-free distributions for funds used for charitable purposes. The maximum annual cap is $100,000. This tax break is scheduled to expire after 2007.

Fractional donations: The new law restricts deductions for donations of tangible property such as artwork. It effectively requires you to recapture the tax benefits if you fail to give away the entire interest within ten years or if the charity does not take possession during that time. The new law change affects donations made after August 17, 2006.

Reminder: This is only a summary of several important provisions in the new law. Consult with a tax professional regarding your actual contributions.

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