A bargain sale is the sale of a good or service to Georgetown Day School for less than its fair market value.
A bargain sale may be right for you if:
- You want additional cash now.
- You itemize your deductions and want to save income taxes.
- You want to save capital gains tax on the sale of your property.
- You own an asset that you are willing to sell for less than its value.
- You want to make a gift to GDS.
How It Works
You sell real estate or other property to Georgetown Day School for less than it is worth and receive cash equal to your sale price. Your property becomes ours to use or sell.
Example
Reginald Crawford, a current parent at Georgetown Day School, owns vacant land in an area under rapid development that he purchased years ago for $15,000. The land was recently appraised at $250,000. Reginald would like to make a major contribution, but he is planning improvements to his home, and he needs about $50,000 to finance his project.
Reginald learns that a bargain sale arrangement will allow him to make the contribution he envisions and get the cash he needs to complete his home improvement project. He’s also pleased with his $200,000 income tax charitable deduction, which will create tax savings in the year of his gift that more than offset the capital gains tax he’ll need to pay. This example assumes Reginald is able to itemize his income tax charitable deduction.
| Facts | |
|---|---|
| Value of land | $250,000 |
| Cost of land | $15,000 |
| Capital gain | $235,000 |
| Sale price | $50,000 |
| Benefits | |
|---|---|
| Income tax deduction | $200,000 |
| Capital gain to report | $47,000 |
| Capital gain avoided | $188,000 |
| Income tax saved at 37% rate* | $74,000 |
| Capital gain tax at 20% rate | - $9,400 |
| Net tax savings | $64,600 |
| Cash to Reginald | + $50,000 |
| Total benefit to Reginald | $114,600 |
*Assumes 37% rate and that Reginald itemizes his income tax charitable deductions.
Eligible property
It is possible to sell any sort of property to GDS for a bargain price. In addition to real estate, you can complete a bargain sale arrangement with collectibles (such as artwork or antiques), other personal property, or securities. Please contact us about the property you are considering so that we can discuss whether we would be interested in acquiring the property for a bargain price.
Tax benefits
You will receive an income tax charitable deduction in the year of your gift equal to the difference between the fair market value of the property you donate and your sale price. Your income tax savings will depend on if you itemize your deductions. Note that if your bargain sale asset is tangible personal property, such as artwork or antiques, that GDS does not put to a use related to our exempt purpose, your deduction will be based on your cost basis rather than the fair market value of the property.
You will also avoid capital gains tax on a portion of your capital gain in the gift property. For example, if you sell your property to us for 40% of its fair market value, you will pay capital gains tax on just 40% of your capital gain in the property. If the asset you sell to us is subject to debt, this debt will be added to your sales proceeds to determine your capital gains tax.
By removing the property from your estate, you may also reduce estate taxes and probate costs when your estate is settled.
Special considerations
If you are interested in selling us real estate or tangible personal property at a bargain price, you will need to establish the value of your property by obtaining a qualified independent appraisal.
To be valid for claiming your income tax charitable deduction, your appraisal must be conducted no more than 60 days before the bargain sale is completed and no later than the due date, including extensions, of the tax return for the year in which you make your gift.
A gift of real estate to GDS requires:
- That we obtain a qualified appraisal to establish the value of your property.
- That we examine your property and conduct our own analysis of its value. For example, we will want to know if there are any debts, taxes, or liens owed on your property.
- That we conduct an environmental audit. Because GDS would become responsible for cleaning up any environmental problems, we routinely conduct a review to make sure the property has no environmental issues.