The Alumnae Association for Douglass College | Douglass Difference

Charitable Bargain Sales


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You’re considering a lifetime gift in partnership with the Associate Alumnae of Douglass College > You hold marketable real estate > You want to secure some cash from the property on a transfer > You want to reduce capital gains tax and also secure an income tax deduction

The charitable bargain sale gives you cash to purchase your next home or to use as the entry fee for a retirement facility. It also gives you a charitable income tax deduction.

The charitable bargain sale works like this: The Associate Alumnae of Douglass College and you mutually agree on a purchase price that is less than the property’s fair market value, which has been determined by your independent appraiser. We may pay the purchase amount upfront, or issue you an installment note for a mutually agreed upon term of years and interest rate.

The bargain sale is our only gift plan that can give you both a lump sum of cash and a charitable deduction. In addition, you avoid capital gains tax on the portion of the transaction that was a gift for the Associate Alumnae of Douglass College.

Here are some considerations:

  1. As with all gifts of real estate, we must review and approve the transfer.
  2. You will need to secure an independent appraisal of the property to establish its value for the deduction.

The Associate Alumnae of Douglass College Office of Gift Planning can advise you on these matters.

Note: If you give property carrying debt – like a mortgage or a lien – and the Associate Alumnae of Douglass College assumes and satisfies the debt, the IRS considers your donation to have been a bargain sale, even if we do not pay you any cash. The amount of debt we assume will be considered taxable income to you.

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Example

You are ready to move to a retirement facility. You know that you will need some of the equity in your current home for the entry fees there. Your home has appreciated significantly over the years, and you would like to use some of the excess value to fund a gift for the Associate Alumnae of Douglass College.

You decide to transfer your home to the Associate Alumnae of Douglass College through a charitable bargain sale. You secure an independent appraisal stating that the house is worth $500,000, and we agree to pay you $300,000.

What are your benefits?

Asset contributed: Residence
Fair market value: $500,000
Cost basis: $100,000
Capital gain: $400,000
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Purchase portion

$300,000
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Donation portion

$200,000
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Charitable deduction

$200,000
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Purchase portion of transaction

60%
($300,000 / $500,000)
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Donation portion of transaction

40%
($200,000 / $500,000)
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Portion of capital gain related to donation

$160,000*
(40% of total)
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 * The first $500,000 of capital gain on your primary residence is excluded from tax, so neither portion of gain was taxed in this example. If you had donated a different piece of property, the $240,000 gain related to our purchase would have been subject to capital gains tax.

How Do You Create a Charitable Bargain Sale?

Consult with an attorney specializing in charitable gifts and estate planning. Then e-mail us, complete the personal illustration form, or call us at 732-246-1600 so that we can assist you through the process.


 

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