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Tax issues raised by charity auctions

It’s not uncommon for charities to hold auctions. Sometimes participants mistakenly believe their successful bids are completely deductible. However, since the individual receives the auction property, there is usually no deduction. If the bid can be shown to be in excess of the fair market value of the item, the amount in excess can be deducted as a charitable contribution.

The charity may make a “good faith estimate” of the value of the auction item.

Let’s look at a few quick and easy examples.

Example 1. A $50 gift certificate to a retail store is purchased at charity auction for $40. No deduction.

Example 2. The same $50 gift certificate purchased for $70 generates a $20 charitable deduction.

Example 3. You purchase a fruit basket, to support a local high school baseball program, for $30. The equivalent fruit basket at a local grocery store would cost $15, so you may receive a $15 tax deduction.

Gordon Fischer Law Firm, P.C. is dedicated to promoting and maximizing charitable giving in Iowa. Gordon can be reached by phone at 515-371-6077; by email at gordon@gordonfischerlawfirm.com; and through his website at www.gordonfischerlawfirm.com.

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