Unfortunately, in this situation, neither individual would be able to take a tax deduction. Pursuant to the IRS, when you contribute the right to use your property, the contribution is less than your entire interest in that property; therefore, it is not deductible. The person who won the auction cannot deduct the amount they paid, because they are receiving a benefit equal to the amount of their payment.
For example, Joe Client owns a vacation home at the beach, which he sometimes rents to others. He is approached by his church about a fundraising auction, and decides to donate the right to use his vacation home for one week. The church accepts and receives a bid from Jane that is equal to the fair rental value of the home for one week. Joe cannot claim a deduction for the donation of the rental home for one week because the partial interest rule applies. Jane cannot claim a deduction for the amount she paid to the church, because she received a benefit equal to the amount of the payment.
When you are making large charitable contributions, it is important that you verify whether it is a valid charitable deduction. We recommend checking with your tax consultant if you are uncertain about whether a certain type of contribution is deductible. For a contribution to be deductible, it must be made to a qualified organization as approved by the IRS. The IRS has a page on their website where you can search to see if a charity is on their approved list. The list is located at the following address: http://www.irs.gov/app/pub-78/.
If you would like more information on charitable contributions and their potential deductibility, please call The Henssler Financial Group Tax & Accounting Division at (770) 428-4025.
