This article is sponsored by the
Society of Industrial and Office Realtors® Foundation.
Promoting and supporting initiatives that educate, expand and enrich the commercial real estate
community for 48 years. Sponsorships made possible by charitable contributions.
The SIOR Foundation is a 501 (c) ( 3) not-for-profit organization. All Contributions are tax-deductible to
the extent of the law.
Noland MacKenzie (“Mac”) Canter III, Copilevitz and Canter, LLC, Washington, DC, has specialized
in providing legal services to tax-exempt organizations since 1977. He has written many articles in
the area of tax-exempt organizational law, and formerly was the co-editor for federal tax issues of
The Charitable Bargain Sale: A “Win-Win” for Seller and Charity
Looking for an end-of-the year tax deduction which also pays you money? You may want to consider a bargain sale.
As the term implies, the sale is a “bargain,” i.e., at a price below
the property’s fair market value. But it is a bargain that provides a tax benefit to the seller if the buyer is a charity, university, church or other Internal Revenue Code section 501(c)( 3)
The key is for the “donor-seller” to intend to sell the property to the charity, such as the SIOR Foundation, for a price
below the property’s FMV. (There is no such thing as an accidental bargain sale.)
Bargain sales are not a tax “gimmick” or a new technique.
They have been used for many years and are referenced in both
the Internal Revenue Code and Treasury Regulations.
Here is an example.
John Donor needs an end-of-the-year tax deduction because
he has underpaid his estimated income tax for 2010. John has
owned a small office building for ten years which provides
rental income for him. John’s current basis in the building is
$200,000. It is worth $600,000, as determined by a professional
appraisal. John desires to benefit a foundation or other charity
for which he has volunteered for many years. John offers to sell
the office building to the foundation for $300,000. John’s intent
to sell below the appraised value to benefit the foundation is
memorialized in the bargain sale agreement.
John’s charitable contribution deduction is equal to FMV
($600,000) less selling price ($300,000) or $300,000.
Because this transaction is also a sale, John has to compute
capital gain. The first step is to allocate John’s basis between
the donation and sale. The formula is basis ($200,000) multiplied by the fraction of selling price (numerator) over FMV
(denominator) or $200,000 x $300,000/$600,000. The result is
basis of $100,000 allocated to the sale element. John realizes
capital gain equal to $300,000 minus $100,000 or $200,000.
John needs the deduction of $300,000 to reduce his income
tax liability. How can he avoid realizing capital gain? Instead of
having the foundation pay cash, the foundation can give John
an installment promissory note for a term of years. John reports
gain on the installment sales method of reporting gain.
This article is not intended, nor is it provided, as specific legal
advice but, rather, only as a general discussion of concepts and
principles for possible plans. Please consult with your attorney
before utilizing any techniques stated herein. This material has
not addressed all issues, principles, exceptions, and exclusions
that may apply to a specific transaction. This article is not provided as legal advice and should not be regarded as such. Only
your attorney with knowledge of the unique facts of your specific situation is qualified to provide advice in regard to tax and
Caveat: This article is not intended, nor is it provided, and
should not be regarded as specific legal advice but, rather,
only as a general discussion of concepts and principles for
possible plans. Please consult your attorney before utilizing
any techniques stated herein. This material has not addressed
all issues, principles, exceptions, and exclusions that may apply to
a specific transaction.