Gift Plan Details: Charitable Bargain Sales

Your organization purchases real estate or other property from a donor for less than fair market value.  The difference between market value and the purchase price is the gift element of the transaction, for which the donor receives a charitable deduction.  You and the donor reach agreement over whether you will pay the discounted purchase price in a lump-sum, or in installments over a term or years.  The donor pays no capital gains tax on the donated portion of the property.

The donor will need to secure an independent appraisal to establish the fair market value of the property.  If the asset being transferred through the bargain sale is real estate, your organization will review the property's value, marketability, and liabilities before accepting it.  In addition, if the property has a mortgage or other lien on it, the donor should satisfy it before the gift is complete.  If your organization takes the property subject to the mortgage, the IRS considers that a taxable benefit to the donor.

(Our handy Planned Giving Pocket Guide describes all planned gifts.)