Can You Write Off Charity Auction Items?

Charity auctions provide a popular way for individuals to support causes they care about. Participants can bid on a wide range of goods and experiences, with the proceeds benefiting the nonprofit organization. A frequent question that arises is whether these purchases can be considered tax-deductible contributions. Understanding the tax implications is a practical consideration for many donors, as the interaction between acquiring an item and making a donation creates a specific set of rules.

Determining the Deductible Amount

When you purchase an item at a charity auction, you are engaging in what the Internal Revenue Service (IRS) calls a “quid pro quo” contribution. This term applies whenever you make a payment to a charity that is partly a contribution and partly in exchange for goods or services. Only the portion of your payment that exceeds the value of the benefit you receive can be considered a tax-deductible gift.

The calculation is based on the item’s Fair Market Value (FMV), which is the price that property would sell for on the open market. Charities are expected to provide a good-faith estimate of an item’s FMV before the auction begins, often in a catalog or on the bid sheet. The deductible amount is calculated by subtracting the item’s FMV from your purchase price.

Consider an example where you attend a charity gala and successfully bid $700 for a framed photograph. The event program lists the photograph’s FMV as $300. In this case, your deductible charitable contribution is $400, which is the amount you paid in excess of the value you received.

If your winning bid is equal to or less than the FMV, you cannot claim a deduction because you received a benefit equal to or greater than your payment. A deduction is only available if you pay more than the stated FMV.

Required Documentation from the Charity

Proper documentation is necessary to substantiate your charitable contribution claim. For any single payment over $250 that is a quid pro quo contribution, the IRS requires you to have a specific receipt, known as a contemporaneous written acknowledgment, before you file your tax return. Without this document, the IRS can disallow your deduction.

For any quid pro quo payment exceeding $75, the charity is obligated to provide you with a written disclosure statement. This document must state the amount of cash you paid for the auction item and provide a clear description of the item or service you received. The statement must also include the charity’s good-faith estimate of the Fair Market Value (FMV) of that item.

This acknowledgment serves as the evidence for your deduction calculation, as it formally records your payment and the value of what you received. The difference between these two numbers is the amount you can potentially deduct. It is a good practice to secure this document from the organization shortly after the event.

Reporting the Deduction on Your Tax Return

Once you have calculated the deductible portion of your auction purchase and have the required written acknowledgment, you can proceed with claiming the deduction. Charitable contributions can only be claimed if you choose to itemize deductions on your federal tax return using Schedule A (Form 1040), rather than taking the standard deduction.

When filling out your tax return, you will report the calculated contribution amount on the “Gifts to Charity” line of Schedule A. You do not report the full purchase price of the auction item. Instead, you report only the amount that exceeded the fair market value of the benefit you received.

You are not required to attach the charity’s written acknowledgment to your tax return when you file. However, you must keep this document with your tax records. Should the IRS select your return for an audit, you will need to produce this receipt to verify your claim. It is recommended to keep these records for at least three years from the date you file.