Americans as a whole are very generous. Each year Americans donate billions to charities in the form of cash and non-cash contributions. Charitable contributions of non-cash property pose special problems for the IRS, primarily because the amount of the deduction is generally the fair market value of the contributed property on the date of contribution. In recent years Congress has taken steps in an attempt to close perceived abuses.
Clothing and household items. Effective for donations made after August 17, 2006, anyone making donations of clothing and household items can only take a deduction for items that are in good used or better condition. This includes furniture, furnishings, electronics, appliances, linens and similar items. You should be aware that food, paintings, antiques, objects of art, jewelry, gems and collectibles are not household items. The IRS may deny a deduction for any item that has minimal value, like used socks or undergarments. However, there is an exception for the donation of single items that might not be in at least good condition if the item is worth more than $500 and you include a qualified appraisal with the donation. So what constitutes good used or better condition? That has not yet been defined. You should maintain as much evidence as possible to substantiate your position if challenged.
Motor Vehicles. Generally, charitable deductions exceeding $500 for donated vehicles are limited to the actual sales price of the vehicle when sold by the charity, and donors must obtain a contemporaneous acknowledgement from the charity in order to claim the deduction. There are some limited exceptions under which a donor may claim a fair market value deduction. If the charity makes a significant intervening use of or a material improvement to a vehicle, or give or sells the vehicle to a needy person at a price significantly below fair market value, the donor may be able to deduct the full fair market value. To meet the contemporaneous requirement, the acknowledgment must be obtained by the donor on or before the earlier of the date on which the donor files a return for the taxable year in which the contribution was made, or the due date (including extensions) of that return.
Cash. In another big change, that is effective starting in 2007, the IRS will no longer permit a deduction for the contributions of cash, check or other monetary gift unless you, as the donor, can show a bank record or a written communication from the charity indicating the amount of the donation, the date the donation was made and the name of the charity. The new recordkeeping requirements give taxpayers no leeway. You must have a bank record or a receipt to substantiate your deduction.