Charity Auction Purchases: What Is Deductible?

No doubt you’ve attended charity functions that have auction events where you can bid upon and purchase items.  If so, questions often arise as to whether the money you spent on the items purchased would be considered as a charitable donation.

If you purchase items at a charity auction, you may claim a charitable contribution deduction for the excess of the purchase price paid for the item over its fair market value.   That being said, you must be able to show, that you knew that the value of the item was less than the amount you paid for it.  As an example, the charity may publish a catalog providing a good faith estimate of items that will be available for the auction.  If you pay more than the published value, the difference between the amount you paid and the published value may constitute a charitable contribution deduction.

If you provide goods for a charity to sell at an auction, can you claim a fair market value charitable deduction for your contribution of appreciated property to the charity that will later be sold?  Under these circumstances, the law limits your charitable deduction to your tax basis in the contributed property and does not permit you to claim a fair market value charitable deduction for the contribution.  Specifically, the Treasury Regulations (Sec 170) provide that if a donor contributes tangible personal property to a charity that is put to an unrelated use, the donor’s contribution is limited to the donor’s tax basis in the contributed property.  Keep in mind that the term “unrelated use” means a use that is unrelated to the charity’s exempt purposes or function.  The sale of an item is considered unrelated, even if the sale raises money for the charity to use in its programs.

Please give us a call if you purchased items at a charity auction or donated to a charity auction and require clarification regarding tax deductions.