Bargain Sales

A bargain sale occurs when a donor sells property to MPR for less than the property’s fair market value. The amount of fair market value over the sales price is the donor’s charitable contribution, which may be reduced by allocation of tax basis and reduction rules relating to unrealized gain. Almost any type of asset may be sold in a bargain sale, depending on the cash available for purchase and the suitability of the asset.

What are the advantages? The charitable contribution portion qualifies for income tax deduction. It may be carried forward for five years if not fully usable in year of gift and it allows the donor to receive some cash sales proceeds while making a charitable gift. A bargain sale may avoid capital gain tax liability on highly appreciated property.

The capital gain portion of a bargain sale is a little tricky. Even if the donor proceeds are equal or less than the asset's cost, there is an allocation of gain formula that needs to account for the gain. Basically, the market value minus the cost is multiplied by the selling price divided by the market value. For example, an art museum acquires a painting worth $100,000 from a donor for the donor's cost or $25,000. The reportable gain is then calculated by subtracting cost basis ($25,000) from market value ($100,000) which equals $75,000 and multiplying that times the selling price ($25,000) divided by the market value ($100,000) or .25. The result is a gain of $18,750.

In this example, the donor will report a long-term capital gain of $18,750 (assuming a holding period that qualifies as long term) and simultaneously has a federal income tax deduction on the gift portion of the bargain sale of $75,000.

Individual financial circumstances vary. The information on this site does not constitute legal or tax advice. Because of the complexity of estate planning, it is important that your attorney structure your estate and draft your will or truts so as to best carry out your wishes. Minnesota Public Radio cannot act as executor of a donor's estate. Individual support guarantees that substance and values, not commercial considerations, govern our programming. Please include MPR in your will and provide a sound legacy to future generations.

We use reasonable efforts to include up-to-date and accurate information on this site, but make no representations, warranties or assurances as to the accuracy or completeness of the information provided. MPR is not liable for any damages related to your reliance on this Charitable Gift Planning site.