Real Estate—Bargain Sale
A donor who wants to recover a portion of the value of the property that he or she wishes to contribute to the University of Michigan may consider entering into a bargain sale transaction. In effect, a bargain sale is a sale of property to charity for less than its fair-market value. The bargain sale price must be any amount mutually acceptable to the charity and the donor.
For example, John Miller, 78, owns a vacation home he no longer uses. He bought the home for $40,000 some years ago, and it is now worth $120,000. He offers to sell it to the University of Michigan for $40,000. As a result, he receives $40,000 from the University of Michigan and can deduct the contributed portion of $80,000 for income-tax purposes. John must also report a capital gain of $26,667. (The reportable capital gain is arrived at by dividing the sale price of $40,000 by the fair-market value of the property—$120,000—and multiplying the result by the gain—$80,000.)
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