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1031 Exchange?  Opportunity Zone Investment?  How about the Bargain Sale?

As part of the national effort to raise funds for World War I, the U.S. enacted the ability for property owners to gain tax savings through the use of the Section 170 "Bargain Sale."  Simply put, the Bargain Sale authorizes the sale & donation of all or a portion of real estate to certain 501(c)(3) charities in exchange for tax treatment of the donated amount as a charitable contribution.  This well-established and thoroughly-tested provision of the U.S. Tax Code is in the same tax strategy "family" as the 1031 Exchange and Opportunity Zone investment, though it precedes both programs by decades.

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The real estate owner sells the property to a 501(c)(3) charity

The sale of property to certain 501(c)(3) organizations at a price below the appraised fair market value is a transaction that is part charitable gift and part sale.  The donated amount (or the difference between the appraised fair market value and the sale price to the charity) is treated as a charitable donation for the seller/donor.  So the seller/donor receives cash from the sale plus an income tax deduction for the charitable donation amount.  Meanwhile, the charity may use the property, lease it out, or elect to sell the property and use the proceeds.
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For the right combination of seller/donor and property, it helps everyone involved!

We help facilitate Bargain Sales around the country.  Here are some factors that likely lead to a positive Bargain Sale experience for the seller/donor, their broker, and the charity...

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Our favorite property types...

In our experience, we find that properties with high vacancies and with asking prices well below replacement costs are good candidates for a Bargain Sale.  We look for properties with values in excess of $3 million.

Our typical seller / donor profile...

Seller / Donors who have a low tax basis in their property are good candidates for a Bargain Sale.  The charitable contribution can be applied for 5 years, so high income (not necessarily high net worth!) sellers stand to benefit the most.

Valuing the Bargain Sale...

A key component of a successful Bargain Sale is to have an independent appraisal of the Fair Market Value of the donated property.  The appraisal must be done according to IRS standards.  The charity's purchase price is matter of negotiation between the charity and the seller / donor.  The seller / donor can still use capital gains from the transaction in a "downstream" 1031 Exchange.

When done right, everyone wins...

The seller/donor receives an immediate income tax deduction for the donated amount and pays no capital gains tax on the donated portion of the property.  The charity then may choose to sell the property or to use it.  Just like traditional sales, the listing broker is paid a commission and the transaction is handled via a neutral escrow office.
The Bargain Sale may be right for you if...
  • You want to donate property and retain some of its value for your personal needs.
  • You are looking for a gift plan that can reduce your capital gains liability, generate a charitable deduction, and give you cash for your property.
  • You hold readily-marketable residential, commercial or undeveloped real estate that has risen in value.
  • You are concerned about rising real estate taxes and the capital gains cost of selling the property.
  • You are willing to sell your property to a charity for an amount below its fair market value.

Got Investment Property? Got Capital Gains Taxes?

If you own a property with high vacancy and with high replacement costs, and you want to minimize your taxes, the Bargain Sale may be right for you!  When structured carefully, the Bargain Sale can make a seller better off financially than after a traditional sale.  Not only can the seller walk away with cash from the sale, they can also receive a charitable donation that can be used to offset federal and state taxes for 5 years.

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