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Charitable Bargain Sale
What is a Charitable Bargain Sale?
Suppose you would like to give a residence or other
real estate to Eckerd College, but you have an outstanding
mortgage that you need to pay off. Or, suppose you need cash for a down
payment on a retirement home. A Charitable Bargain Sale may be a great
way for you to benefit Eckerd College and yourself at the
same time.
How Does It Work?
Part sale and part gift, a Charitable Bargain Sale
is conducted under special IRS rules. You and Eckerd College agree
to a purchase price for your property that is less than the property’s
market value as determined by a qualified appraisal. Eckerd College pays
you the purchase price in cash, an installment note, or a combination
of both as mutually agreed upon. This payment is typically designed to
provide you the cash to retire a mortgage or for other purposes. You
qualify for a charitable income tax deduction for the gift portion of
the transaction. You will be liable for capital gains tax on the sale
portion only.
Example
You and your spouse donate a personal residence having an
appraised value of $500,000, and an adjusted cost basis of $100,000 in a Charitable Bargain Sale arrangement. Bargain Sale price of
the property is $125,000, payable in cash. Here are the calculations:
Charitable Bargain Sale
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Total
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Sale Portion
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Gift Portion
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Value |
$500,000 |
$125,000 |
$375,000 |
Basis |
$100,000 |
$25,000 |
$75,000 |
Gain |
$400,000 |
$100,000 |
$300,000 |
Summary of Benefits
Gift
to Eckerd College |
$375,000 |
Payment
to donor |
$125,000 |
Charitable
deduction |
$375,000 |
Reportable
capital gain on sale portion |
$100,000 |
Capital
gains tax on sale portion (15%) |
$0* |
Capital
gain forgiven on gift portion |
$300,000 |
Capital
gains tax savings on gift portion (15%) |
$45,000 |
*Since there is a capital gains tax exclusion of $500,000 per couple on the sale of a personal residence, all capital gains
tax is avoided in this example.
PLEASE NOTE: This example is for illustration
purposes only and is not intended as legal or tax advice. Consult your
own legal and tax advisors prior to making any material decisions based
on this date.
Send me a Personal Illustration!
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For more information
E-mail
us, complete the Personal Illustration
form, or call us at (727) 864-8229 so that we can assist
you.
Judi Schraer
Director of Gift Planning
Eckerd College
4200 54th Avenue South
St. Petersburg, FL 33711
(727) 864-8229
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