Are Charity Auction Purchases Deductible Contributions for Real Estate Investors?

Charities often hold auctions as a way to gain valuable contributions that help better their cause. If you are a real estate investor, you may wonder whether your auction purchase at one of these charity events can be considered a deductible contribution. Below, Royal Legal Solutions helps clarify how charity donations work on your tax returns.

Charity Auction Purchases

According to the Internal Revenue Service (IRS), some, but likely not all, of the money you paid for an item at a charity auction is considered deductible.

  • The Importance of Fair Market Value

As stated above, the IRS only considers a portion of your auction purchase to be a deductible contribution. Some charities will provide a catalog of items prior to the start of the auction. In this book, you may find a “good faith” estimate on each item’s estimated worth. Assuming you have no reason to doubt the validity of these estimates, this catalogue is an important piece of evidence. Why? The IRS will only consider the portion of your purchase that goes above “fair market value”. However, you need to demonstrate that you knew the value before you paid for the object. Having a catalogue that provides this is a quick and easy way to prove this.

  • Real Estate Example

If a property is listed for auction, a proactive sale will include the estimated fair market value. This will include an examination of how developed the property is, as well as its current state. Purchasing this property for $10,000 more than the estimated fair market value means you could potentially claim that additional money as a deductible contribution to a charity.

Providing Assets to a Charity

Another question we often get is regarding charitable donations. Unfortunately, the IRS limits the amount you can claim as a deduction. Unlike purchasing an item, you cannot claim fair market value for items you donate. Instead, you can only claim an amount relative to your tax basis.

When In Doubt, Ask a Professional

At Royal Legal Solutions, we can help you address any tax questions you may have. As a real estate investor, retirement plan owner, or business entity – our professionals understand how the tax laws affect your returns. If you have questions regarding charity contributions, whether through purchase or donation, the experts at Royal Legal Solutions can help you get the most out of your tax filing. If you would like to schedule a consultation with one of our professionals, contact us today!

Last Updated: 
June 13, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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