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Your path to this gift:
You're considering a lifetime gift in partnership with UCI > 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
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The charitable bargain sale gives you cash that you can use to purchase your next home or as the entry fee for a retirement facility, and it gives you a charitable income tax deduction.
The charitable bargain sale works like this:
- We mutually agree on a purchase price that is less that 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 to UCI.
Here are some considerations if you are contemplating a bargain sale to us.
- First, as with all gifts of real estate, we must review and approve the transfer.
- Second, you will need to secure an independent appraisal of the property to establish its value for the deduction.
Our office can advise you on these matters.
Note that if you give us property carrying debt – like a mortgage or a lien – and we assume and satisfy the debt, the IRS considers your donation to have been a bargain sale, even if we don't pay you any cash. The amount of debt we assume will be considered taxable income to you.
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Example
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You're ready to move to a retirement facility across town. You know that you will need some of the equity in your current home for the entry fees there. But your home has appreciated significantly over the years, and you would like to use some of the excess value to fund a gift to UCI.
You decide to transfer your home to us 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
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$300,000
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Donation portion
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$200,000
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Charitable deduction
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$200,000
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Purchase portion of transaction (60%)
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($300,000 / $500,000)
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Donation portion of transaction (40%)
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($200,000 / $500,000)
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Portion of capital gain related to donation[1]
(40% of total)
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$160,000
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[1] 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.
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How Do You Create a Charitable Bargain Sale?
You should consult with an attorney expert in the areas of charitable gifts and estate planning.
Email us, complete the personal illustration form, or call us at 949-824-8384 so that we can assist you through every step of the process.
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