Gifts of clothing and household items: Many people periodically clear out their closets and attics, donate unwanted items to charity, and claim a deduction for the value of the items. You can continue to do this in the future—but only if the items are in “good” or better condition. This new rule applies to donations of clothing, furniture, appliances, linens and similar household items. (This applies for donations after August 17, 2006.)
Cash gifts: As a general rule, deductions for charitable donations must be substantiated by canceled checks or receipts from the charity. However, in the past, a log or other written record sufficed when cancelled checks or receipts were not readily available. So, for example, if you dropped a $20 bill in the Sunday collection plate or in a Christmas kettle outside of a department store, you could still claim a deduction as long as you kept a record of the donation. The new law eliminates this option starting in 2007. All charitable donations must be supported by bank records or receipts from the charities. (Effective January 1, 2007)
Donations from IRA funds: The Pension Protection Act creates a new tax break for charity-minded individuals age 70 ½ or older. Distributions of up to $100,000 from an individual retirement account are tax-free if paid over to a charity. However, this new break is temporary; it applies only to distributions made in 2006 and 2007.
Credits for energy-efficient home improvements and the purchase of hybrid vehicles were new for 2006 and continue through 2007.
If you have any questions about how these or other tax law changes affect you, please contact us.