A Bargain Sale to a Non-Profit Organization

What is a Bargain Sale?

A Bargain Sale, works much like a gift from a Charitable Trust. First, a professional appraisal must be taken to set a legitimate selling value of the prescribed property. A portion of the property is considered as sold to your organization, while the remaining portion is considered as a donation to the non-profit organization. A Bargain Sale involves both selling, and donating a specific peace of property to a non-profit organization for less than appraised price, or the fair market value. In using this method of transaction its legal term is called a Bargain Sale.

How does a Bargain Sale work?

The donor/seller realize immediate cash from the transaction or income from the property, while the property changes hands and the non-profit takes possession of the property. In a bargain sale, the donor /sells of the property receives less than the appraised value, or less than the fair market value. This not only makes it more affordable for the non-profit, but also offers several benefits to the donor. It provides cash and avoids some of the capital gains tax, and entitles the donor to a charitable income tax deduction based on the difference between the property's fair market value, and appraised value, and that portion is the donated value price.
 

What advantages do I get?

This gift plan is advantageous to both the donor and the non-profit in the right circumstances; however, there can be some expenditure on the part of the non-profit, and for this reason a Bargain Sale is used less frequently than other gift plans. It is really appropriate when the non-profit has a need for the property and intends to use it for a couple of years in some manner. The donor/seller receives both proceeds and an income tax deduction. The donor/seller can enjoy benefits similar to those if they would have sold the property at fair market value.

What about the IRS?

A Bargain Sale says to the Internal Revenue Service (IRS) that a gift was made to a charity and that "part was a charitable contribution of in kind, while the remaining portioned, or (equity) was a donation. You will need to request an 8283 Non-cash Charitable Contribution Form from the IRS, and attach it to your tax return if you claim the total deduction of over $5000 for all contributed property. The total cost including expenditures or the appraised value sets the price of the property. The difference between the appraised, or fair market value, and the agreed price to the non-profit is deductible in proportion to your tax bracket. That's one tax benefit. The other is a reduction (though not elimination) in capital gains taxes that would have accrued from a full value sale. Capital gains tax is imposed on the "profit," between the purchases; fewer expenses accrued while owning the property.

What is the Law concerning a Bargain Sale?

By Law, you may commonly deduct up to 50% of the adjusted gross income, and if your contribution is more than this percentage, you can deduct the remaining amount over the next five years. The bargain sale donation will generally allow you to deduct the fair market value of the property at the time the contribution is made.

Other Benefits to the Donor/ Seller

Not only does the donor/seller receive the benefits of receiving cash along with a substantial tax deduction, they are able to contribute to a worth cause. However, there is another benefit as well that the donor/seller may not have considered. For example, if you own a boat, you are able to deduct the expenses of storage, docking the vessel, any repairs, insurance, broker's commissions, closing cost, etc. On top of that the donor/seller doesn't suffer the depreciation of the property while it's on the market, which is normally more than six months. Donating your property ends all expenses, and responsibilities once the property has legally changed hand so the donor/seller avoids any future problems.

Be sure to consult your attorney or your Accountant

Rescue Rods, and the Rescue Mission Foundation Inc strongly recommend that you use good common sense, along with utilizing legal accounting practices. Follow the tax laws when donating any property, and it is advisable to see an attorney, or have your Accountant analyze the interplay among your personal tax position.