I just read your question about lottery winnings over $600, where you said the winner had to pay income tax on the value of the winnings. Does this same treatment apply to charity auction items? If I bid and win an auction item valued at more than $600 and only pay a percentage of its value, do I have to pay income tax on the difference?
No. When you win a lottery, the IRS treats the value of the winnings (less the price of the tickets) as ordinary taxable income and requires the charity to report individual winnings of more than $600. (You owe tax on net winnings of less than $600 as well, but we suspect that requirement is honored about as much as the requirement to have a license for the charity lottery.)
When you “win” an auction, you win the right to buy the item for more or less than its fair market value. If you get a “deal” and pay less than it is worth, the IRS treats it like buying any item that you buy “on sale.” You don’t have to pay a tax on what you theoretically “saved.” If you pay more than it is worth, under the “quid pro rules,” you may claim a charitable contribution deduction for the amount you give the charity that is more than the fair market value of the item. (See Ready Reference Page: “Charities Must Set Value on 'Quid Pro Quo' Gifts.”)
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