Bargain Sale
A transfer of assets from the donor to Oxfam America at a reduced price in exchange for a lump sum or periodic payment. The difference between the bargain price and the fair market value is a charitable gift to Oxfam.
What are some benefits of a bargain sale?
A bargain sale is an excellent way for a donor to generate immediate liquidity, or to supplement his or her retirement income.
Bargain sales allow donors to avoid the burden of property management and also provide tax savings from the income tax charitable deduction.
A bargain sale with a fixed number of installment payments to the donor may be preferable to transferring valuable assets in exchange for gift annuity payments which terminate at the annuitant's death.
What are some details and tax issues regarding bargain sales?
For tax purposes, the transaction is part sale and part gift to charity. The gift portion of a bargain sale to Oxfam America qualifies for the income tax charitable deduction. The deduction equals the difference between the fair market value and the reduced price. The income tax charitable deduction may be taken in the year of the gift, even if the donor receives installment payments for the sale portion.
To determine if there is a taxable gain on the sale, the donor's cost basis is allocated for tax purposes between the sale portion and the gift portion of the transaction. Income taxation of the sale portion can be spread by receiving payment in installments.
The IRS treats the outright transfer of debt-encumbered property to charity as a bargain sale, as if the donor had received cash for the amount of "debt relief."
A donor must file IRS Form 8283 with his/her tax return and obtain an independent appraisal to substantiate the charitable deduction for non-cash gifts (other than publicly traded securities) in excess of $5,000 in value, or $10,000 for closely held stock.
Contact our gift planning specialist for more information.