Yes, you must claim the fair market value of the prize as other income on line 21 of your tax return. The good news is that what you paid for the auction is deductible as a charitable contribution as long as you have an acknowledgement from the charity with all the info on it. That would include, the charity name and tax ID number, the value of the prize, what you contributed, and whether you got any goods or services over and above the value of the prize in return for the contribution.