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In recent years, major changes in the tax rules affect the amount you can deduct for contributions you make to your college, religious organization, or other non-profit or charitable group. You used to be able to deduct contributions made in cash or by check without having any special verification from the charity that you made the contribution. A canceled check, receipt, or other reliable written record showing the name of the organization, the date, and the amount you gave would be enough to back up the deduction.

For the most part, those days are over. The changes came in two steps. First, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and, more recently for contributions made after passage of the charitable provisions within the Pension Protection Act of 2006 (PPA).

Cash and property-dollar limits

For donations under EGTRRA, you can't claim a deduction on your return for any contribution of $250 or more unless your gift is substantiated by a written acknowledgment from the charity. Your canceled check alone won't be enough. For cash donations under PPA, this rule still applies but, in addition, a cancelled check or bank statement or a written acknowledgement from the charity is required for any contribution less than $250, whether it is $1 or $249. The additional PPA substantiation rule applies to cash contributions made in tax years beginning after August 17, 2006 (which is starting in 2007 for most taxpayers.)

Your gifts to an organization during any year aren't aggregated to meet the $250 threshold. If you write a $200 check this month and another later in the year, for example, you won't need the special acknowledgment even though your total contribution exceeds the $250 limit. But don't try to avoid the new requirements by writing separate checks to the same organization on the same day, or over a very short time period, as that might trigger IRS anti-abuse powers.

You are expected to get the acknowledgment by the time you file your return for the contribution year. If you don't have it by April 15th, a filing extension can give you a little extra time to receive the acknowledgment. In the event that you file your return late, you can claim a deduction only if you can prove you had the written acknowledgment in hand by the filing deadline, including any filing extensions.

Here's what you need from charitable organizations to claim your deductions:

• If your contribution is an outright donation of $250 or more made in cash or by check, the organization must indicate the amount that you gave, and state that you received nothing in return.
• If your contribution is an outright donation of $250 or more of property, or cash and property, the organization must describe the property and state that you received nothing in return. It doesn't have to put a value on the property it received.

All donors of charitable contributions by cash, check, or other monetary gift must retain records that each charitable contribution was actually made, regardless of the amount. To fulfill this burden, a donor has two choices on what paperwork to retain:

• a bank record; or
• a receipt, letter, or other written communication from the donee indicating the name of the donee organization, the date the contribution was made, and the amount of the contribution

Donations of clothing and household goods

All donations of clothing and household goods made after August 17, 2006, are subject to all of the regular rules on substantiation, plus the taxpayer must prove that they are items in at least good condition. Starting August 18, 2006, only clothing and household goods in at least good condition qualify for a deduction.

There is only one exceptions to the "good-or-better" quality exception:

• a deduction of more than $500 is claimed for the single clothing or household item, and
• you include a qualified appraisal with respect to the item with the tax return on which the deduction is claimed.

All donors of clothing or household items must be able to prove by records that the quality of the goods contributed are in good used condition or better. Congress, however, did not further define "good used condition or better," leaving it to the IRS to do so and, if it chooses, also to set a minimal value under which no deduction will be allowed irrespective of quality. If a charity sells donated clothing for its rag content, for example, the IRS is likely to deny a deduction for those contributions. Speculation is that socks or underwear will be on the IRS's list of items excluded for minimal value. We will keep you informed as the IRS releases further details.

Vehicles and boats

Donations of vehicles and boats carry their own special rules. Beginning in 2005, any vehicle not used by the charity cannot be claimed as a deduction in an amount greater than the amount for which it is sold by the charity (generally the wholesale price, or lower). To evidence this, the IRS implemented the use of the Form 1098C, Contributions of Motor Vehicles, Boats or Airplanes. The charity to which you donate your vehicle must report its receipt and sale or gift of the vehicle to the IRS using this form. Additionally, to claim a deduction for the gift of the vehicle, you must receive a copy of this form from the charity, and submit it with your tax return. There are significant time constraints under which the charity must provide you with this form, although some lenient transition rules are currently in place. If you donated a vehicle to a charity, or are considering doing so, please call our office so we can help you get that deduction. Quid pro quo statement.

If you receive goods or services in return for your $250 or more contribution (a so-called "quid pro quo"), the acknowledgment you get from the charity generally also must give a description and good faith estimate of the value of those goods and services.

However, certain types of customary membership benefits offered for a membership are ignored. These benefits include discounts on parking and gift shop items. Token benefits are also disregarded. Generally, a benefit worth no more than $8.90 for 2007 ($8.60 for 2006) is considered insubstantial. And if you make large contributions, you can receive back something worth as much as 2 percent of your contribution up to a maximum of $89 in 2007 ($86 in 2006). Importantly, these items are not just disregarded for the special proof or substantiation rules. That is, you won't have to subtract the value of disregarded items from your gift in arriving at your deduction.

Payroll deductions

Special rules apply to contributions made to an organization by payroll deduction. You won't have to worry about getting any special acknowledgment from the organization, unless you have $250 or more withheld from any single paycheck. And, even in that case, you will be able to substantiate your contribution with pay stubs, your W-2 form, or any other document from your employer showing the amount withheld, and a pledge card or other document stating that the charity didn't give you goods or services in exchange. It's even OK for your employer to prepare the pledge card under the direction of the charity.

Larger gifts

There are additional record keeping rules for larger gifts of property. If you plan any unusually large gifts, there are a number of other complicated limitations that apply, and there are many sophisticated ways to structure your contributions so that both you and the organization get the maximum benefit. For example, for property valued at more than $500, you must include with your return a written description of the donated property and such other required information as the IRS may require. For property valued at more than $5,000, you also must obtain a qualified appraisal. If your contributions of property are valued at $500,000 or more, you must attach the appraisal to your return.

As you can see, claiming charitable deductions can be complicated. Please call us if you aren't clear about what you will need to claim deductions for your contributions.

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