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TheStreet Open House

Yes, It's Tax Deductible, but...

NEW YORK ( TheStreet) -- Several years ago a client included in the "stuff" she sent me at tax time a receipt for donating her car to a charity.

When I gave the finished return to her she asked me how much tax she saved by donating the car. My response: "Not a penny!"

She was confused.

"They told me I could deduct the value of the car on my tax return."

"Yes", I replied. "You are entitled to a tax deduction for donating a used car to a qualified charity. But only if you can itemize!"

This situation took place before Congress changed the rules for claiming a deduction for donating a vehicle to charity, so the taxpayer was entitled to a deduction for the "fair market value" of the auto, which is the Kelley's Blue Book "private party" value adjusted for condition and mileage. My client's car was worth about $2,000. Under current law the amount she could deduct would depend on what the charity did with the vehicle.

The taxpayer rented an apartment, so she had no real estate taxes or mortgage interest to deduct. Her cash contributions to church and charity were average. As a senior citizen she did not pay any state income tax, and at the time state and local sales tax was not deductible. Her medical expenses, including Medicare Part B, exceeded 7½ of her adjusted gross income, but not by much. Her total allowable itemized deductions for the year, including the $2,000 car donation, did not exceed the applicable standard deduction. So she received no tax benefit from donating her car to charity.

Now some more from the "yes it is deductible, but..." tax file:

Following the 'spirit' of the tax law

This past tax season a client told me he put a five dollar bill in the collection plate at church each Sunday, which totaled $260 for the year. However, I could not claim the deduction.

You can deduct contributions of cash to a qualified church or charity if you itemize on Schedule A. But you must have a record of the contribution in order to be allowed the deduction.

The record must be in the form of an actual cancelled check, or a copy of the front of the check and a corresponding debit entry on your monthly bank statement, an item on a bank or credit card statement identifying a credit or debit card charge, or a written receipt from the church or charity showing the name of the organization, the date of the contribution, and the amount of the contribution.

The law does not say that all contributions of $50 or more must be documented. It says that all cash contributions must be documented.

When donating to your spiritual organization, following the spirit of the tax law isn't good enough if you want to avoid the IRS audit teams that tend to lean on the letter of the law. So you can no longer just put a five or ten dollar bill in the collection plate each week. You must write a check to the church for the $5 or $10 each week, or you must take advantage of the church's "envelope" system, which will provide you with a written receipt at the end of the year.

And I'm just getting started...

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