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UNDEDUCTIBLE UNMENTIONABLES

August 09, 2006

One little-noticed provision in the new H.R. 4, the new pension bill awaiting the President's signature, cracks down on the donation of used household goods to charity. The Joint Committee on Taxation's report on the bill shows this isn't a small issue:

As recently reported by the IRS, the amount claimed as deductions in tax year 2003 for clothing and household items was more than $9 billion.

I have always thought that Goodwill and the Salvation Army would be economic behemoths if the clothing donations they received wore really worth the amount clamed as deductions for them. $9 billion is about the annual revenue of CSX, the railroad holding company, for example.

To crack down, the new tax law will forbid deductions for household items not in "good" condition. Also, the IRS will be:

...authorized to deny by regulation a deduction for any contribution of clothing or a household item that has minimal monetary value, such as used socks and used undergarments.

At least now if former President Clinton gets audited for his $2 per-pair deduction of used underwear, it won't matter whether it's boxers or briefs. Under the new law, though, he can still get a deduction for them if they appraise out at over $500. The Red Cross may be able to use the fabric.

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