THE BARGAIN SALE

Everyone loves a bargain. Charitable organizations are no different than you or I when it comes to getting a good deal. The bargain sale is a charitable giving technique that is seldom promoted, but it can truly create a win/win situation for the right donor and nonprofit.

Recently I had the opportunity to help a donor and a nonprofit complete a bargain sale arrangement, and there may be other potential donors out there just waiting to have this kind of gift opportunity presented to them.

As I explain how this particular gift was created, you will be able to better understand how a bargain sale arrangement works. All particulars have been changed, but the basic facts are presented as they occurred.

A local San Antonio charity had facilities that were adjacent to some unimproved acreage near a strip center. A representative of Mr. Donor approached the charity to see if it would be interested in buying the unimproved property for future expansion. As it happens, the donor in this case was not very familiar with the charity or the work that it did in the community.

After learning of Mr. Donor's interest in selling the property, the Executive Director of the charity realized that the property would provide an excellent opportunity for the future growth of the charity if the asking price was reasonable. The ED invited Mr. Donor to lunch where they discussed at length Mr. Donor's wish to sell the property and the charity's need to expand its very worthy mission. In the course of the discussion, Mr. Donor's interest was peaked as the ED passionately explained the mission and the people helped by their programs. The luncheon concluded with the ED inviting Mr. Donor to tour the nonprofit's facilities and learn more about how the charity might use Mr. Donor's land.

Several phone conversations occurred after the luncheon in which the possibility of a charitable gift was discussed. It was learned that Mr. Donor had a specific purpose for which he wanted to sell the property, but the property was worth considerably more that what he actually needed in cash. A couple of weeks later, Mr. Donor arrived for his tour, accompanied by two of his financial advisors. The ED asked that I attend the tour and meeting afterward (with the permission of Mr. Donor) because he intended to again bring up the subject of a charitable gift.

As it turned out, Mr. Donor had already discussed the benefits of a charitable gift with his advisors and asked informed questions about how a partial gift might work. After obtaining the necessary information about the value of the land, the amount of cash Mr. Donor needed and his personal tax situation, we agreed that I would provide him three "what if" proposals to consider. After reviewing the proposals, Mr. Donor decided to proceed with the gift arrangement ultimately selling the property, which was valued at over $1 million, to the charity for $200,000. The difference between the fair market value of the property and the actual selling price ($800,000+) was treated as a charitable gift to the charity for which Mr. Donor could claim a charitable deduction, carrying over any excess deduction for up to five additional years. Needless to say, everyone involved was very happy with this arrangement…..including me!

Bargain sale arrangements are treated just like any other sales transaction. A sales contract must be approved by both parties and title is transferred to the purchaser (the charity) after closing on the sale. The charity issues a gift receipt describing the gift portion of the transaction, and the seller (donor) must obtain a qualified appraisal to support the sales value of the property and the charitable deduction he will claim. The donor will also need to submit an IRS Form 8283 (Noncash Charitable Contributions) with his income tax in the year the property is sold. The form must be signed by the receiving charitable organization.

If you have donors who own properties that would be of value to your charity, why not consider educating them on the benefits of a bargain sale? If you have questions about bargain sales or other charitable giving techniques, feel free to email me.