Donations for silent auctions that are dedicated to a charitable purpose get different tax treatment from the Internal Revenue Service depending on whether you’re the purchaser or the donor. If you’re donating something, the driving factor is the amount you originally paid for it. If you’re buying something at an auction, the only way you can deduct anything is to spend more than the item is worth.
If you’re providing goods for a silent auction, the donation can’t be counted based on what the winning bid is. Rather, it’s based on your tax basis in the donated item or the fair market value, whichever is lower. If you found a painting at a flea market and paid $50 for it, later had it appraised for $500,000 and sold it at a charity auction for $5 million, you can deduct just the original $50 as a charitable donation. On the other hand, if you bought a computer for $800 two years ago and its fair market value is $400, your deduction is limited to $400. Donated services, such as five hours of financial planning services, are never deductible.
Buyer's Tax Burden
Buying a $50 gift card for $45 at a silent auction for charity only nets you a good deal, not a tax break. You may be able to claim a deduction for the amount you paid that exceeds the item’s fair market value. However, that’s only true if you knew you were paying more than the value of the item in advance.