You can deduct donations of goods you make yourself, but you can only deduct what it cost you to make the item, not its fair market value. That means that if you donate a hand-knit scarf to your church holiday fair or a tray of cookies to a school bake sale, you can deduct only the cost of the yarn or the ingredients, not the price the items sell for. Basically, you're allowed to deduct your out-of-pocket costs, but not the value of the labor you put into making your handmade goods.
This is what the IRS says about charity auction donors:
Donors who provide goods for charities to sell at an auction often ask the charity if the donor is entitled to claim a fair market value charitable deduction for a contribution of appreciated property to the charity that will later be sold. Under these circumstances, the law limits a donor's charitable deduction to the donor's tax basis in the contributed property and does not permit the donor to claim a fair market value charitable deduction for the contribution.
