Most old clothing, furniture, appliances, electronics and other household items donated to charity must be in “good used condition or better” to qualify for a tax deduction under new federal legislation signed by President Bush this week.
This means many old toasters, televisions, stereos, phones or computers given to charity that work erratically or not at all can no longer be claimed for federal tax deductions.
Maj. Todd Hawks, national public affairs secretary for the Salvation Army, the nation’s largest charity, said the changes will make charities and donors better stewards of contributions.
“At this time, we spend millions on handling and discarding items that are not useful,” he said, adding that the money could be better spent helping the needy.
The new rules are included in the federal Pension Protection Act of 2006, which Congress enacted before its current recess and Mr. Bush signed into law Thursday.
“What Congress is saying now is that if you give junk to charity, you shouldn’t write it off,” said an IRS official, who asked not to be identified.
“There are a number of provisions in that law dealing with issues such as tax deductions and tax-exempt status (of organizations), because there has been a lot of abuse” in those areas.
In the 2003 tax year, Americans claimed deductions of “more than $9 billion” for clothes and household items, according to a report by the Joint Committee on Taxation (JCT).
Both the President’s Advisory Panel on Federal Tax Reform and staff of the JCT have concluded that the previous policy of basing tax deductions on fair-market value of donated goods has been difficult both in terms of tax administration and the “intensive resources” required, the congressional committee report said.
The Treasury secretary is now “authorized to deny a deduction for any contribution of clothing or household item that has ‘minimal monetary value,’ such as used socks or undergarments,” according to the JCT report on the rule changes for charitable giving and receiving.
Eyebrows were raised in late 1993 after press reports that President Clinton took itemized deductions on used underwear he had donated to charity when governor of Arkansas. For instance, on the return he filed for 1986, Mr. Clinton valued a gabardine suit “with ripped pants” he gave to the Salvation Army at $75 and three pairs of underwear at $6.
Dave Barringer, vice president of member relations for Goodwill Industries International, said about 5 percent of the more than 1 billion pounds of clothing Goodwill receives each year must be discarded.
The new tax rules will reinforce the message: “This isn’t a place to dump trash,” Mr. Barringer told the Associated Press.
Maj. Hawks also said it “would be helpful” if the IRS issues a uniform evaluation guide to let people know the acceptable range of value for commonly donated goods.
Donations of food, paintings, antiques and other art objects, jewelry and gemstones are excluded from the new federal provisions.
But under the provisions, a deduction may be allowed for charitable contributions of high-end garments or household items not in good used condition or better, if the value is assessed at more than $500 and a taxpayer includes a “qualified appraisal” of the property with his tax return. Such an item might include a once-costly mink coat, officials suggested.