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A bargain sale can generate a gift that is less than the full fair market value of the property. In this scenario, you agree to sell the property to Hood College at less than its fair market value. With this type of charitable gift, the difference between the sale price and the fair market value is the amount that determines your charitable deduction. While the tax rules relating to a bargain sale are somewhat complex, the net result is often more favorable than selling the property at fair market value and making a charitable contribution from the realized capital gain.
Example: Ellen sold the home she purchased many years ago for $30,000 to a philanthropic institution for the same amount, even though it was really worth $90,000 at the time of the sale. Her charitable contribution is $60,000 ($90,000 fair market value less $30,000 sale price).
Ellen does incur a capital gain in this type of transaction, but it's much less than for a sale at full market value. She is treated as having sold one-third of the property, so one-third of the $30,000 basis, or $10,000, is allocated to the sale portion. Therefore, she has a gain of $20,000 ($30,000 received from the sale less $10,000 basis attributable to the sale portion). However, $40,000 of the appreciation attributable to the gift escapes taxation. Plus, she receives a $60,000 charitable deduction.
A bargain sale accomplishes the gift and provides you with immediate cash, while also relieving you of the time, effort and costs of a normal sale.
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You create a tangible and enduring testimonial of your interest in our goals when you give your home or other real property. It's one of the most fitting contributions you can make. Your personal satisfaction is complemented by significant tax benefits.
Please contact Nancy Gillece at 301-696-3702, or via e-mail at gillece@hood.edu, for more information.
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The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to income tax apply to federal taxes only. Federal estate tax, state income/estate taxes or state law may impact your results.
