KEEPING LEGAL:
What’s deductible and what’s not for auction participantsOrganizers and participants in auctions are often confused about what is, and what is not, tax-deductible. Too often people think that because all the proceeds from such an auction are going to a tax-exempt charitable organization, the purchase price paid for items purchased at an auction is tax-deductible. Wrong! Contributions to tax-exempt organizations are only tax-deductible if the donor does not receive anything of value in return. In the case of an auction, the IRS considers the donors to actually be buyers purchasing something of value. Therefore, generally none of the price paid for an item is tax-deductible.
Here are few more frequently asked questions about auctions and tax-deductions:
What if buyers get carried away with the auction, perhaps in an effort to drive up the price and benefit the charitable organization? Can you then deduct the price paid that exceeds the fair market value?
No. The price paid is considered the fair market value, none of which is deductible to the buyer/donor, regardless if the price paid exceeds what you might pay for a similar product or service on the open market.
Can the individual/organization that donates an item to the auction take a tax-deduction for the donation?
Yes. The donor of an item to be auctioned may take a deduction for the fair market value of the donated item. The charitable organization should provide a receipt for the item(s). A receipt is required if the fair market value of the donation exceeds $250.
Can an individual/organization take a contribution deduction for the donation of services?
No. Time, even for the donation of professional services (i.e. legal or accounting services) is not deductible.
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