Bargain Sale of Personal Property

There are a number of ways to increase your return on a donation, one of which is a Bargain Sale.

A Bargain Sale is a transaction where a donor, with the intention of making a charitable gift, sells a property to a charity at less than it's than its appraised fair market value, with the result that it is in part a charitable contribution. The donor is taxed on the gain attributable to the bargain sale portion and avoids tax on the gain attributable to the gift value. For example, if you sell your property with a fair market value of $50,000 to a charity for $20,000 and are allowed a deduction for all or part of the remaining $30,000 gift, you have made a Bargain Sale. You are allowed a deduction for the $30,000 difference between the appraised value and the bargain sale price.

The exact amount in cash funded to Earth Economics depends on the amount it realizes when it sells the property.

Example: Mr. and Mrs. Potter own a rental house appraised at $500,000 with an adjusted cost basis of $200,000. They believe that now is the ideal time to sell the property in order to realize top dollar. They have also been thinking about establishing a fund at Earth Economics. They accomplish both objectives and save taxes by offering to sell the property to the foundation for $300,000. Earth Economics agrees to purchase the property for this amount. The Potter's have made a bargain sale. They recognize a capital gain of $180,000 (the portion of total gain attributable to the sale), but their charitable deduction is $200,000. Assuming they are able to use the deduction, it will offset the tax on the gain. As a result of the transaction, they will have after-tax proceeds of approximately $300,000 and will have established a fund with some $200,000.

A bargain sale is not limited to real estate; one can make a bargain sale with art, collector cars, antiques or any other personal property.

A donation is definitely a "win-win proposition" for you!