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Charity Auction Purchases And Income Tax

Thursday, May 5th, 2016

Charities often hold auctions to raise money for their organization. All of the money collected from bidders to purchase items is then given to the specific cause of the organization. Some people may wonder whether or not their bids constitute as a charitable donation and how that affects income tax. In order to seek an income tax deduction for charity auction items, you need to understand fair market value and keep a record of your purchases. It is also important to understand the tax implications for donating items to a charity auction and how to keep records of your donations.

Fair market value of charity auction items

When a person purchases an item at a charity auction, the amount that is deductible for income tax is called the Fair Market Value. This value means the tax deduction is the difference between what the item is actually worth and what was paid. You will need to prove an item’s actual worth and that you knew the amount before making the bid for your income tax.

Proving the difference in price for income tax

Organizations usually publish a catalog that is given to bidders before the charity auction. Auction catalogs will sometimes list good faith estimates of items being sold. If the amount you bid on an item is more than the amount in the catalog, then the difference will be deductible on your income tax. If there is not a catalog provided, the bidder will have to estimate the value to determine their deduction. You will have to prove to the IRS how you came up with the value to deduct the difference on your income tax.

Charity auction purchase records for income tax

You need to request a written acknowledgement from the charity for any amount over $250 that you contributed to the auction. You will also need your canceled check, bank statement, or credit card statement to verify the amount was paid. Anyone who files the 1040 schedule A with the IRS is allowed to make this type of deduction on their income tax.

Donating your items to a charity auction

You can claim items you donated to a charity auction on your income tax as well. However, the calculation for the deduction amount is different from when you purchase an item. The calculation does not consist of a fair market value or the winning bid amount. As the donor, you are limited to the original amount paid for the item. If you donate personal property to the charity, then the deduction is limited to the tax basis for the property.

Record of charity auction item donations

If you donate personal property to a charity auction and it is worth more than $250, you must receive a written acknowledgement from the organization. The record must show the name of the organization, a description of the property, and one of three following statements.

The organization can provide you with a statement that you received no goods or services in return for the contribution. A good faith estimate of the value of the item and description is also acceptable. The third option is a statement saying any goods or services provided in return for the contribution were limited to intangible religious benefits.

Any tangible goods worth more than $5,000 would be required to be professionally appraised.

If you would like more information about auctions or auction purchases, contact the experts at High Plains Auctioneers today. Call us today at (806) 244-6776 or Contact Us by email for more information about our services. You can also view our upcoming auctions to see what we currently have available.