Are Charity Auction Purchases Deductible Contributions?

It is common practice for charities to hold auction events at which attendees bid on and purchase items. The question often arises as to whether the money spent on the items purchased constitutes a charitable donation.

The answer is that some, but not all, of what you paid for the item may be deductible. Donors who purchase items at charity auctions may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. The donor must be able to show, however, that he or she knew that the value of the item was less than the amount paid. For example, a charity may give a catalog to each person who attends an auction that provides a good faith estimate of the value of items that will be available for bidding. Assuming that the donor has no reason to doubt the accuracy of the published estimate, if he or she pays more than the published value, the difference between the amount paid and the published value may constitute a charitable contribution deduction.

In addition, donors who provide goods for charities to sell at an auction often ask the charity if the donor is entitled to claim a fair market value charitable deduction for a contribution of appreciated property to the charity that will later be sold. Under these circumstances, the law limits a donor's charitable deduction to the donor's tax basis in the contributed property and does not permit the donor 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. 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.

If you have questions related to charity auctions, please give this office a call.

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