Thanks for reading the 25 Days of Giving series. We’re “unwrapping” posts on various aspects (some well known, and some more obscure) of charitable giving each day through Christmas.
I know what you’re thinking…a bargain sale means discounts on stuff at the store. But, I’m talking about a different kind of sale—a useful charitable giving tool/technique.
Bargain sales defined
Bargain sales can be a useful charitable giving tool/technique. A bargain sale is a transaction in which a donor receives less than the full market value of property transferred to the charity. The transaction is treated as part sale, part gift, with the donor’s basis allocated proportionally between the gift amount and the sale amount.
Simple example of a bargain sale
Let’s take a simple example. Assume Jill Donor owns farmland worth $1 million, for which she paid $200,000 years ago. Jill sells the land to her local community foundation for $500,000 and starts her own donor-advised fund. Jill then makes a gift of the difference ($500,000) between the sale price and the fair market value of the farmland. Jill must pay tax on the gain element but may receive a charitable deduction on the gift element.
The total basis of $200,000 is allocated between the gift and sale portions. Since Jill sold the land for half price of fair market value, the basis is allocated 50/50. Therefore, the allocated basis is $100,000. The gain, then, is $400,000; assuming the top capital gain tax rate of 20%, this would mean $80,000 of capital gains tax due. But Jill also avoided another $80,000 of capital gains tax by the bargain sale of the property.
The net result in this simple example is positive for Jill. Again, Jill received $500,000 in cash. But, she also may receive a charitable deduction for having gifted $500,000. The charitable deduction at, say, the top rate of income taxation, 37%, would be $185,000. One way to look at this entire transaction is that Jill received $500,000, paid $80,000 in capital gains taxes, but received a $185,000 deduction, meaning a net of positive cash flow of $605,000 to Jill.
Remember, all Iowans are unique and have individual legal and tax issues. Consult your own professional advisor for personal advice. Questions? Contact me at any time via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).
https://www.gordonfischerlawfirm.com/wp-content/uploads/2015/06/erwan-hesry-171450.jpg40006000Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-12-01 17:04:382020-05-18 11:28:4125 Days of Giving: What the Heck is a Bargain Sale?
It’s not a cheese, wine, or bath products advent calendar…but beginning December 1 through Christmas Day the GoFisch blog will feature a new piece related to giving. ‘Tis the season for giving and the “25 Days” posts will feature information important for both nonprofit executives and donors.
https://www.gordonfischerlawfirm.com/wp-content/uploads/2017/11/Copy-of-Christmas-Icons-Funny-Card.png315828Gordon Fischerhttps://www.gordonfischerlawfirm.com/wp-content/uploads/2017/05/GFLF-logo-300x141.pngGordon Fischer2019-11-30 20:18:432020-05-18 11:28:4125 Days of Giving Starts December 1
I would like to wish you a very happy Thanksgiving. I hope that you have the opportunity to spend quality time with your loved ones. I’ve taken a much needed moment this holiday to take a step back and think about all GFLF has to be thankful for. I owe so much to my clients, friends, and family who have helped make this year a successful one.
Here are just a few of the things GFLF has to be exceedingly grateful for:
To get to work with amazing clients and talented professional advisors.
Being entrusted with drafting and executing estate plans for Iowans, enabling them to pursue their estate planning goals, achieve peace of mind, and set a plan in place for the future for their loved ones.
Getting to work toward maximizing charitable giving in Iowa in our respective, wonderful communities.
But, really, this is a short list—the tip of the turkey, if you will—of what GFLF is perpetually thankful for.
25 Days of Giving: What the Heck is a Bargain Sale?
Charitable Giving, Taxes & FinanceThanks for reading the 25 Days of Giving series. We’re “unwrapping” posts on various aspects (some well known, and some more obscure) of charitable giving each day through Christmas.
I know what you’re thinking…a bargain sale means discounts on stuff at the store. But, I’m talking about a different kind of sale—a useful charitable giving tool/technique.
Bargain sales defined
Bargain sales can be a useful charitable giving tool/technique. A bargain sale is a transaction in which a donor receives less than the full market value of property transferred to the charity. The transaction is treated as part sale, part gift, with the donor’s basis allocated proportionally between the gift amount and the sale amount.
Simple example of a bargain sale
Let’s take a simple example. Assume Jill Donor owns farmland worth $1 million, for which she paid $200,000 years ago. Jill sells the land to her local community foundation for $500,000 and starts her own donor-advised fund. Jill then makes a gift of the difference ($500,000) between the sale price and the fair market value of the farmland. Jill must pay tax on the gain element but may receive a charitable deduction on the gift element.
The total basis of $200,000 is allocated between the gift and sale portions. Since Jill sold the land for half price of fair market value, the basis is allocated 50/50. Therefore, the allocated basis is $100,000. The gain, then, is $400,000; assuming the top capital gain tax rate of 20%, this would mean $80,000 of capital gains tax due. But Jill also avoided another $80,000 of capital gains tax by the bargain sale of the property.
The net result in this simple example is positive for Jill. Again, Jill received $500,000 in cash. But, she also may receive a charitable deduction for having gifted $500,000. The charitable deduction at, say, the top rate of income taxation, 37%, would be $185,000. One way to look at this entire transaction is that Jill received $500,000, paid $80,000 in capital gains taxes, but received a $185,000 deduction, meaning a net of positive cash flow of $605,000 to Jill.
Remember, all Iowans are unique and have individual legal and tax issues. Consult your own professional advisor for personal advice. Questions? Contact me at any time via email (gordon@gordonfischerlawfirm.com) or by phone (515-371-6077).
25 Days of Giving Starts December 1
Charitable GivingIt’s not a cheese, wine, or bath products advent calendar…but beginning December 1 through Christmas Day the GoFisch blog will feature a new piece related to giving. ‘Tis the season for giving and the “25 Days” posts will feature information important for both nonprofit executives and donors.
What I want to know is: what questions about charitable giving do you have? From specific to general, email them to me at Gordon@gordonfischerlawfirm.com.
Remember, no matter what winter holiday you celebrate, all have the power to make a positive impact through charitable giving!
Happy Thanksgiving!
Events, From Gordon's Desk...I would like to wish you a very happy Thanksgiving. I hope that you have the opportunity to spend quality time with your loved ones. I’ve taken a much needed moment this holiday to take a step back and think about all GFLF has to be thankful for. I owe so much to my clients, friends, and family who have helped make this year a successful one.
Here are just a few of the things GFLF has to be exceedingly grateful for:
But, really, this is a short list—the tip of the turkey, if you will—of what GFLF is perpetually thankful for.
Wishing you full bellies and hearts today,
Gordon Fischer