Every spring, schools run charity auctions. Parents bid generously. Many assume the full payment is deductible.
Often, it is not.
Under IRC Section 170, you may deduct only the portion of a payment that exceeds the fair market value of what you receive.
This is called a quid pro quo contribution.
If you receive something of value, the deduction is reduced by that value.
Scenario 1
$500 Paid for a $200 Gift Certificate
If you pay $500 for a restaurant gift certificate worth $200:
Deductible amount = $500 minus $200
Deductible charitable contribution = $300
The gift certificate has clear fair market value. The deduction is limited to the excess.
Scenario 2
Buying a Child’s Art Project
This is where confusion starts.
You pay $400 for your child’s framed classroom art piece. What is the fair market value?
The IRS definition of fair market value is the price a willing buyer would pay a willing seller, neither under compulsion, both having reasonable knowledge of the facts.
Emotional value does not count.
If comparable student art would reasonably sell for $25, then:
Deductible amount = $400 minus $25
The bid price does not determine fair market value. Comparable market evidence does.
The IRS does not treat the auction price as fair market value if the bidding reflects charitable intent.
Scenario 3
Purchasing Retail Goods
If the auction item is a retail product with an established market price, that price generally controls.
If you pay $1,000 for a vacation package normally sold for $800:
Deductible amount = $200
The charity cannot convert a retail purchase into a full charitable deduction.
Who Sets Fair Market Value?
The charity must provide a good faith estimate of fair market value for items exceeding $75 when part of a quid pro quo contribution under IRC Section 6115.
However:
The taxpayer remains responsible for the accuracy of the deduction claimed.
If the stated value is unreasonable, the IRS may challenge it.
Documentation Requirements
Under IRC Section 170(f)(8):
For contributions of $250 or more, you must obtain a contemporaneous written acknowledgment that includes:
• The amount paid
• A description of property received
• A good faith estimate of fair market value
• A statement that only the excess is deductible
If the acknowledgment is missing or incomplete, the deduction can be entirely disallowed, even if the payment was legitimate.
Practical Checklist Before You Claim the Deduction
• What did you actually receive?
• What is its objective fair market value?
• Did the charity provide a written acknowledgment?
• Does the acknowledgment clearly state the value received?
• Does your deduction reflect only the excess over fair market value?
Before You File
If you regularly attend school or nonprofit auctions, review your documentation before filing.
Reply with one sentence:
“Auction deduction review” and what you purchased.
Bottom Line
You may deduct generosity.
You may not deduct consumption.
At school auctions, the deductible portion is the amount paid above the fair market value of what you receive.
If you are uncertain about valuation or documentation, review it before filing.
(Disclosure: Educational only. Not tax or legal advice.)