Bargain Sale Technique

Bargain Sale Technique
A Rarely Used Technique to Solve a Client Property Liquidation Issue
Chase Magnuson, CFO

Society of Exchange Counselors members often are retained by clients with complex ownership issues.  As problem solvers, members use many seldom-used, creative concepts to reach an acceptable resolution for their clients.  The use of charitable bargain sales arrangements is one of those little-known opportunities.  This article will provide some background information and a case study to demonstrate one of many ways to adapt this tool into your consulting practice.

Here are some of the benefits a property owner might use:

  • Current charitable tax deduction for use to off-set adjusted gross income obligations, both federal and possibly state
  • Cash to reinvest or for other uses
  • Relief from ownership obligations and risks
  • Donors fulfill their philanthropic legacy
  • Charity takes on the responsibility of selling the property
  • Structure an attractive Section #1031 exchange

Owners/donors might either want some portion of the sales price to be in cash for their use or for debt relief.  In either case, those funds are subject to taxation. The gift to charity equals the difference between the fair market value of the property and the cash proceeds or debt pay-off.

In a “Bargain Sale” arrangement, the donor’s cost basis must be allocated between the gift and the sale portions.

  • The basis allocated to the sale is the total basis multiplied by the ratio of the bargain sale price to the FMV.
  • The basis allocated to the sale is then subtracted from the bargain sale price to determine the gain realized upon which capital gains tax is owed.

Fees for Counselors can be generated in several ways:

  1. Brokerage commission that might not otherwise have been possible—no traditional option available to sell the property
  2. Hourly consulting fees to orchestrate the solution for the donor AND the charity beneficiary
  3. Performance bonuses
  4. Referral fees
  5. Opportunity to be placed on retainer with a variety of large charities

There are over 1.6 million charities in the United States generating over $380 billion in donations ever year.  Many of these charities are seeking professional real estate support.  In addition to a viable income, source work within the nonprofit world might very well leave a wonderful legacy.

Please click the links below for backup information:

Bargain Sale Explanation

Bargain Case Study

Bargain Sale Calculations

Comparison of Outcomes

Chase V. Magnuson
Chief Financial Officer
Realty Gift Fund
2011 Botulph Road
Santa Fe, NM 87505
Phone: (714) 815-8889

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