Katrina-Related Tax Breaks, and One That Isn't

On the other hand, he said, donations do not have to be for Hurricane Katrina relief, unless the donor is a business.

The normal rules were enacted in part to keep wealthy people from possibly wiping out their tax liabilities with charitable gifts, but lawmakers were apparently more interested this year in eliciting money for storm victims than in holding down deductions. As a result, they offered a big break for those who can afford it in a bill enacted in September.

It may be tough to imagine someone able to give away cash equal to his entire AGI, but Nissenbaum said, "while it's unusual, there are quite a few."

For example, he said, a wealthy person who gets a large share of his income from tax-exempt bonds might be able to give away enough cash to wipe out the taxes he would otherwise have to pay on the taxable portion of his income.

"There are people who would be quite happy to give away 100 percent of their [taxable] income," Nissenbaum said.

The new law also exempts charitable donations made under the new law from the broad restriction, known as the Pease provision after its legislative author, that kicks in on itemized deductions when a taxpayer's AGI hits $145,950.

The same bill that so generously eases the deduction restrictions also contains several other benefits, though these are specifically tied to charitable activities directly related to Katrina.

Taxpayers who take hurricane evacuees into their homes for at least 60 days are allowed an additional $500 personal exemption for each person they take in, up to a maximum of four people, or $2,000. The exemptions are allowable this year in the 60 days ended Dec. 31. If the period ends later, the exemption is available in 2006.

Lawmakers also boosted the mileage deduction for use of a car in charitable Katrina relief work from the current 14 cents a mile to 70 percent of the business-deduction rate. That works out to 34 cents at present. And they allowed a volunteer who uses his car in Katrina relief work to exclude from taxable income reimbursements from a charity for up to the business-mileage rate, currently 48.5 cents.

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Though private forecasters worked these out weeks ago, the IRS recently made official the increases that inflation will cause in many areas of the tax system for 2006. Among them:

The value of each personal and dependency exemption will be $3,300, up $100 from this year.

The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles and $7,550 for heads of household.

Tax-bracket thresholds will increase for each filing status.

The annual gift-tax exemption will be $12,000, up from $11,000 in 2005.