New law changes rules on deducting charitable gifts

By Don Spencer

On Aug. 17, President Bush signed into law the Pension Protection Act of 2006. This law addresses a number of key pension issues. But also included in the bill were some significant provisions that will affect charitable giving.

There is one provision that will affect many church members' ability to claim a tax deduction for their charitable giving, starting in 2007. Donations of cash no longer will be deductible unless the donor has a canceled check, bank record or a receipt from the recipient listing the organization's name, date and the amount of the contribution.

A typical local church example:

Martha routinely contributes $30 each week to her church. She simply puts the $30 in the offering plate, not using a church offering envelope. Each week she keeps a log of her contributions. At the end of the year she provides that log to her tax preparer who records the total as a charitable contribution deduction on her tax return.

Starting in 2007, she no longer will be able to claim a tax deduction for these contributions. If she writes a check, she would be able to take the deduction. Or if she uses a church offering envelope and the church provides her a written record of her donations, she could claim the deduction.

Another provision of this law will affect the donations of used clothing and household items. No tax deduction will be allowed for these items unless the item is in good condition -- or if the item's value is over $500, an appraisal must be supplied. The IRS also is given the power to deny any deduction for clothing or household items of minimal monetary value.

On the positive side, during 2006 and 2007, individuals age 70 and a half or older can donate their IRAs (traditional or Roth) to charities on a tax-free basis. These tax-free payouts donated directly to charities are limited to $100,000 per year and must be to a qualified charity.

As always, anyone wanting to make such a contribution should consult with a qualified tax professional.

For more information on rules about charitable contributions, go to www.kybaptist.org/annuity and click on "Charitable Contributions."

Don Spencer is a certified financial planner and directs the Kentucky Baptist Convention's church financial benefits department.