Q & A: Charity Raffles

Question about Charity Raffles:  If I purchase a $100 ticket for a charity raffle drawing and win a $1,000 pair of US Open tickets, can I claim a charitable contribution deduction for the $100 I spent on the raffle ticket?  If I donate the raffle prize back to the organization, can I claim a $1,000 deduction for the value of the tickets?

Answer:  Let’s break this down.  First, you may not claim a $100 charitable contribution deduction for purchasing the raffle ticket.  The IRS has ruled that there is no charitable deduction because you received something of value by purchasing the raffle ticket (i.e., the chance to win US Open tickets).  In addition, you won a prize worth $1,000; therefore you must declare the $1,000 raffle winnings as income, but you can offset the $100 price paid for the raffle ticket so the net taxable income you need to report is $900.  The nonprofit has to report the gambling winnings to the IRS on Form W-2G if the winnings are $600 or more.

Second, the general rule for claiming tax deductions on gifts of personal property to a charity when the property has not been held for more than a year is that the donor may deduct the lesser of the tax cost of the property or its fair market value.  (To get a full fair market value deduction, the property would have to be held for more than a year and used in the charity’s charitable program.)  In this case, if this donation of the raffle prize is properly analogized to a sale or exchange, unlike a $100 purchase of a $1,000 pair of tickets where the purchaser would have a basis of $100, the tax rules provide that property received in a transaction generating income to the recipient will be deemed to have a tax basis equal to the gross amount of income received that is applicable to the property.  Since the purchaser of the raffle ticket received gross income of $1,000 in winning the raffle prize (US Open tickets), the tax basis would be $1,000, equal to the value of the prize. The donor could deduct the $1,000 as a charitable contribution.  Now you know a little bit more about the tax ramifications of charity raffles.