Question: Some weeks ago you wrote about the new tax laws and how they impact on our investments. But you didn't mention the rulings in connection with donating items to charity. I have a sense that they are tougher than in the past.

A BuyandHolder

Answer:

Dear BuyandHolder,

You're right. The Pension Protection Act of 2006 tightened the rules for making non-cash donations to charities. Now, there's no deduction unless clothes, household items, appliances, furniture and the like are in "good used condition or better."

If, on the other hand, a single item is not in "good used condition or better" but is worth $500 or more, the IRS allows a deduction as long as you submit a written qualified appraisal and provided you have a receipt from the charity -- on its official stationery.

Regarding "Good Used Condition Or Better"

There is no official definition of "good," so you should use common sense. I recommend that you:

(1) Call the charity first to see if they will accept your type of donation.

(2) Take a picture or video of all the items you're donating.

(3) Keep written documentation, such as "6 Brooks Brothers dress shirts." Or "two ladder back chairs with cane seats."

(4) If you are donating more items than usual this year because you moved, attach an explanatory note to your list of deductions.

(5) Be conservative in your estimates.

(6) Always get a receipt, signed or filed in by a staff member of the charitable organization.

Additional Tax Points To Keep In Mind

• Charitable tax deductions are allowed only if you itemize your deductions.
  
  
• The higher your tax bracket, the bigger the break. If, for example, you're in the 33% tax bracket, the actual cost of a $100 donation is $67 - that's $100 minus the $33 tax savings. The cost for someone in the lowest bracket (15%), for a $100 contribution is $85. In other words, as your income tax bracket increases, the real cost of your charitable contribution decreases.
  
  
• Your contribution is deductible in the year in which it is paid. If you put a check in the mail, that equals payment. And, a contribution made using your credit card is deductible in the year it is charged to your credit card, even if payment to the credit card company is made the next year.
  
  
• Not all charitable organizations qualify for deductions. Contributions to foreign governments, foreign charities and certain private foundations are not deductible.
  
  
• Donations to needy individuals are not deductible.
  
  
• Starting in 2007, the IRS will require written documentation to substantiate deductions for cash donations. In case of an audit, you must have a canceled check, credit card statement or a written acknowledgement from the charity (showing the charity's name, the date of the donation and the amount given). You will no longer be able to deduct those few dollars you dropped in a charity's collection bucket without a receipt from the charity to back up your claim.

Good luck!