A bargain sale refers to the decision to sell real property to a charitable organization
at less than its fair market value. A donor typically decides to make a bargain
sale of appreciated property to a favorite charity to avoid the capital gains tax
they would pay by selling it at full market value. In other words, rather than pay
the capital gains tax to the government, they choose to make that "payment"
to the charity of their choice.
Mr. and Mrs. Thompson, for example, own a piece of residential property they bought
for $50,000, thinking they would build a home on it. They subsequently made other
plans, however, and have done nothing with the lot. Over the years, the property
has appreciated to the point that the Thompsons have received several unsolicited
offeers for as much as $200,000. The Thompsons now hesitate to sell the property,
due to the large capital gains tax bill they will incur.
Since the Thompsons have previously told their accountant of their desire to give
$100,000 outright to one of their favorite charities, she suggested a bargain sale
as the most cost-effective way to fund this gift.