Charitable Bargain Sale:

Questions Donors Ask

What if the property has a mortgage or other lien on it?

The mortgage or lien can and should be paid off prior to the bargain sale or with the sale proceeds received by the previous owner. This produces the best tax benefit to the donor/seller. If the charity assumes the lien or mortgage, then it is considered taxable income to the donor/seller.

Can I arrange for a gift annuity with the sale proceeds of the deal?

Assuming there are net sale proceeds to the donor/seller, these proceeds can be used to establish a charitable gift annuity, or the gift portion of the bargain sale can be used for a gift-annuity contract. For example, a donor arranges a bargain sale of real estate for the sale price of $100,000. The property has an appraised market value of $200,000, thus making this arrangement a bargain sale of $100,000 and a charitable gift of $100,000. The donor can turn around and donate the sale proceeds ($100,000) received in this deal for a charitable gift annuity. This produces the maximum tax benefits for the donor. On the other hand, the charity can agree to a charitable gift annuity contract based on the donated portion ($100,000) of the bargain sale.

Why not sell my property and make a gift from proceeds of the sale instead?

When the donor enters into a bargain sale he/she receives an immediate infusion of cash from your organization. This may help bridge the gap between residence sale and purchase of a new residence, or other immediate needs for cash while a sale of the appreciated property is pending.

Can I choose the appraiser who determines the market value of my property in the bargain sale?

Yes. In fact, your organization may also choose to conduct an appraisal for due diligence purposes, but it is the donor’s responsibility to obtain a qualified appraisal for gift purposes and to file this appraisal with his/her tax return.

When will I typically want to use a bargain sale?

Bargain sales are most effective for donors who have an interest in your organization’s charitable mission and have an appreciated asset they would like to donate but need an infusion of cash for some immediate purpose. Donors most commonly use the proceeds from a bargain sale of real estate to pay the entrance fee to a retirement community or to retire a mortgage on an existing home. Bargain sales of other types of property, typically art and other collectibles, are normally made to nonprofits that would retain and use the asset to ensure the donor’s income-tax charitable deduction.