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.”)
Planned giving sounds complicated, with its CRUTs and CRATs, CLUTs and CLATS, and CGAs. It can be incredibly complicated, but it needn’t be. Keeping it simple may be the best way to start a planned giving program for a charity that hasn’t already put one in place.
This webinar offered a review of major planned giving instruments and a discussion of ones that make the most sense to emphasize in starting a planned giving program. It discussed the advantages of integrating planned giving into an existing development program, targeting the best prospects, getting buy-in from the board that is likely to generate results, and setting a structure to make it all happen.
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