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Charity Caveats

Changes in tax laws can affect your deductions for donated items.

This story appears in the April 2007 issue of Entrepreneur. Subscribe »

Feeling philanthropic? Watch how you go about giving to your favorite cause. The Pension Protection Act, passed in 2006, brought some changes regarding charitable contributions, including making it tougher to get deductions for giving away noncash property, from old computers to old clothes. It also increased accountability for more intensive charitable efforts, such as donor-advised funds.

"In the past, noncash items were deducted for fair market value," says Lawrence J. Macklin, a wealth strategist with Bank of America Wealth & Investment Management in Baltimore. "That's still the rule, but now deductions are only allowed for items in 'good used condition or better.'" How the IRS and affected charities will define "good used condition" remains to be seen, but in the meantime, a safe bet would be to exercise discretion both when giving and valuing noncash donations.

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