Bargain Sale Gifts
All slides are
taken from this
book.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238
Bargain sale:
The transfer of an asset to a charity for
less than fair market value in order to
make a gift
Deduct the
value of
what you
give less
the value of
what you
get back
Charity wants land worth $1,000,000
Donor sells it to charity for $400,000
Charity wants land worth $1,000,000
Donor gives it to charity for $400,000
I give $300,000
house with
$100,000
mortgage
I give $300,000
house with
$100,000
mortgage
I give $100,000 in stock
Charity pays $3,000
per year for life
Annuity
Stock
Charity pays $3,000
per year for life
Annuity
Stock
Deduction = $100,000 - Value of annuity
I give $100,000 in stock
The rules for calculating capital gain
adds complications
I paid for it
I sell it for
fair market
value of
I have a
capital
gain of
I paid for it
I sell it for
fair market
value of
I have a
capital
gain of
I paid for it
I sell it to
charity for
It has a fair
market
value of
I have a
capital
gain of
Step 1: Divide property value
Original cost
$500,000
Value
$1,000,000
Gave to charity for
$800,000
$800,000
Sale Part
80%
$800,000 of sale income
Original cost
$500,000
Value
$1,000,000
Gave to charity for
$800,000
$800,000
Sale Part
80%
Step 2: Divide cost basis
Original cost
$500,000
Value
$1,000,000
Gave to charity for
$800,000
$400,000
Sale Part
of Cost ...
Sale part: $400,000 of cost basis
Original cost
$500,000
Value
$1,000,000
Gave to charity for
$800,000
80%
Sale Part of
Co...
Gain = $ received – basis(sale part)
Original cost
$500,000
Value
$1,000,000
Gave to charity for
$800,000
$800,000 Receive...
% of the
property value
sold
% of cost basis
allocated to
sale
=
When would
we use the
giftpart of
cost basis?
Remember:
some property
gifts can be
deducted only
at cost basis
“unrelated use”
tangible personal
property
Cost basis deduction is “gift part”
of cost basis
Original cost of
“unrelated use”
tangible personal
property
$500,000
Cur...
Bargain Sale
$500,000 Original cost
$1,000,000 Value
$800,000 Charity pays
$800,000 Donor keeps
$200,000 Charity gets
$400...
Bargain sales
cannot generate
tax losses, so loss
property should
be sold not gifted
Debt on gifted property is sale income.
Consider shifting debt to other assets.
Lot C
$100,000 value
$50,000 cost
$50,000 debt
Lot B
$100,000 value
$50,000 cost
$50,000 debt
Lot A
$100,000 value
$50,000...
Donor
$100,000 deduction
$0 sale (from debt)
$0 capital gain
$50,000 remaining equity
Lot A
$100,000 value
$50,000 cost
$5...
Examples
from
case law
Charles sells a conservation easement on his farm to
the county for $309,000 (their normal rate). He
deducts for a bargain...
Deduction is valid. The county
rate was not fair market rate Browning v. Commissioner, 109 T.C. 303, 1997
Charles sells a ...
After negotiations fail, highway department
sues to take land. The lawsuit settlement pays
less than appraised value, so t...
After negotiations fail, highway department
sues to take land. The lawsuit settlement pays
less than appraised value, so t...
Bargain Sale Gifts
Help me
HERE
convince my bosses that continuing to build and
post these slide sets is not a waste of time. If
you work for...
If you clicked on
the link to let
me know you
reviewed these
slides…
Thank
You!
This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
Universi...
Bargain Sale Charitable Gifts
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Bargain Sale Charitable Gifts

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These slides are taken from the graduate financial planning course "Introduction to Charitable Planning" at Texas Tech University. Details at www.EncourageGenerosity.com

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Bargain Sale Charitable Gifts

  1. 1. Bargain Sale Gifts
  2. 2. All slides are taken from this book. Available from Amazon.com Full color version available at www.createspace.com/4707238
  3. 3. Bargain sale: The transfer of an asset to a charity for less than fair market value in order to make a gift
  4. 4. Deduct the value of what you give less the value of what you get back
  5. 5. Charity wants land worth $1,000,000 Donor sells it to charity for $400,000
  6. 6. Charity wants land worth $1,000,000 Donor gives it to charity for $400,000
  7. 7. I give $300,000 house with $100,000 mortgage
  8. 8. I give $300,000 house with $100,000 mortgage
  9. 9. I give $100,000 in stock Charity pays $3,000 per year for life Annuity Stock
  10. 10. Charity pays $3,000 per year for life Annuity Stock Deduction = $100,000 - Value of annuity I give $100,000 in stock
  11. 11. The rules for calculating capital gain adds complications
  12. 12. I paid for it I sell it for fair market value of I have a capital gain of
  13. 13. I paid for it I sell it for fair market value of I have a capital gain of
  14. 14. I paid for it I sell it to charity for It has a fair market value of I have a capital gain of
  15. 15. Step 1: Divide property value Original cost $500,000 Value $1,000,000 Gave to charity for $800,000 $800,000 Sale Part 80%
  16. 16. $800,000 of sale income Original cost $500,000 Value $1,000,000 Gave to charity for $800,000 $800,000 Sale Part 80%
  17. 17. Step 2: Divide cost basis Original cost $500,000 Value $1,000,000 Gave to charity for $800,000 $400,000 Sale Part of Cost Basis 80%
  18. 18. Sale part: $400,000 of cost basis Original cost $500,000 Value $1,000,000 Gave to charity for $800,000 80% Sale Part of Cost Basis $400,000
  19. 19. Gain = $ received – basis(sale part) Original cost $500,000 Value $1,000,000 Gave to charity for $800,000 $800,000 Received -$400,000 Sale part of basis $400,000 Gain
  20. 20. % of the property value sold % of cost basis allocated to sale =
  21. 21. When would we use the giftpart of cost basis?
  22. 22. Remember: some property gifts can be deducted only at cost basis “unrelated use” tangible personal property
  23. 23. Cost basis deduction is “gift part” of cost basis Original cost of “unrelated use” tangible personal property $500,000 Current value $1,000,000 Gave to charity for $800,000 Deduction $100,000 $400,000 Sale Part of Cost Basis 80%
  24. 24. Bargain Sale $500,000 Original cost $1,000,000 Value $800,000 Charity pays $800,000 Donor keeps $200,000 Charity gets $400,000 Capital gain (taxable) Sale + Gift $500,000 Original cost $1,000,000 Value/Sale $200,000 Gift after sale $800,000 Donor keeps $200,000 Charity gets $500,000 Capital gain (taxable)
  25. 25. Bargain sales cannot generate tax losses, so loss property should be sold not gifted
  26. 26. Debt on gifted property is sale income. Consider shifting debt to other assets.
  27. 27. Lot C $100,000 value $50,000 cost $50,000 debt Lot B $100,000 value $50,000 cost $50,000 debt Lot A $100,000 value $50,000 cost $50,000 debt Donor $100,000 deduction $100,000 sale (from debt) $50,000 capital gain $50,000 remaining equity Charity $100,000 net gift Giving property with debt
  28. 28. Donor $100,000 deduction $0 sale (from debt) $0 capital gain $50,000 remaining equity Lot A $100,000 value $50,000 cost $50,000 debt Lot B $100,000 value $50,000 cost $50,000 debt Lot C $100,000 value $50,000 cost $50,000 debt Charity $100,000 net gift $0 debt $75,000 debt $75,000 debt Shifting to give debt-free property
  29. 29. Examples from case law
  30. 30. Charles sells a conservation easement on his farm to the county for $309,000 (their normal rate). He deducts for a bargain sale because his appraised value was $518,000. Result?
  31. 31. Deduction is valid. The county rate was not fair market rate Browning v. Commissioner, 109 T.C. 303, 1997 Charles sells a conservation easement on his farm to the county for $309,000 (their normal rate). He deducts for a bargain sale because his appraised value was $518,000. Result?
  32. 32. After negotiations fail, highway department sues to take land. The lawsuit settlement pays less than appraised value, so taxpayer claims bargain sale tax deduction. Result?
  33. 33. After negotiations fail, highway department sues to take land. The lawsuit settlement pays less than appraised value, so taxpayer claims bargain sale tax deduction. Result? Deduction is valid. Court saw charitable intent in negotiation letters referencing possibility of “contribution/sale”. Consol. Investors Group v. Commissioner, T.C. Memo 2009-290
  34. 34. Bargain Sale Gifts
  35. 35. Help me HERE convince my bosses that continuing to build and post these slide sets is not a waste of time. If you work for a nonprofit or advise donors and you reviewed these slides, please let me know by clicking
  36. 36. If you clicked on the link to let me know you reviewed these slides… Thank You!
  37. 37. This slide set is from the curriculum for the Graduate Certificate in Charitable Financial Planning at Texas Tech University, home to the nation’s largest graduate program in personal financial planning. To find out more about the online Graduate Certificate in Charitable Financial Planning go to www.EncourageGenerosity.com To find out more about the M.S. or Ph.D. in personal financial planning at Texas Tech University, go to www.depts.ttu.edu/pfp/ Graduate Studies in Charitable Financial Planning at Texas Tech University

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