IRS Section 170 Bargain Sale - Are they Legitimate or Not?
I am listing a property and just got an offer from a non-profit that I haven’t heard of. The amount of cash they are offering is below market value, but they claim there are massive tax benefits to selling to them, which will help my client net more than if he traditionally sold at our asking price. Is this worth considering? Or is it a bunch of BS?
[{"id": "irx4v6r", "text": "Lemme guess, Welfont is the brokerage.", "replies": [{"id": "irxhjbk", "text": "Nope, it\u2019s SireGroup", "replies": [{"id": "is4adf7", "text": "Ahh. Former Welfont employee.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "irxsn2q", "text": "I represented a seller who received an offer as a bargain sale. The way I understand it, I can\u2019t see how it would be worth more than a traditional cash sale. Read the rules on the IRS webpage, but here is the basics of what I understand:\n\n1. Buyer and Seller agree to a market value for the property (say 3MM)\n2. Buyer (non-profit) can\u2019t afford to pay full price\n3. Buyer can provide 2MM in cash or loan\n4. The IRS allows the 1MM difference to be considered a tax deductible donation. Then the Seller (assuming they have sufficient tax liability) can claim a 1MM tax deduction on their taxes.\n\nThis only works if the Seller has a high tax liability AND is willing to receive less than the property is actually worth. If the Seller has a tax rate of 30% across the 1MM in income, they save 300k in taxes. In effect, they receive 2.3MM for the building, but it has to appraise for 3MM to even get that much.", "replies": [{"id": "iry6sps", "text": "2 is not necessarily true. The \u201cvalue\u201d in a bargain sale hinges on getting the property to appraise at over sales price. It doesn\u2019t mean the buyer lacks the funds or it has to be sold under market rather they are just a 501c/Non-profit. \n\nI sold a building years ago under a bargain sale. We sold at asking and massaged the appraisal to $1.1m over sales price. Seller got his price plus the tax benefit of the \u201cdonation.\u201d One of those deals I actually feel bad about as the building was really probably worth half of the just the sales price but it was such a specialized asset, it was literally the only thing like it in the market.", "replies": [{"id": "iryn7gv", "text": "In this example, sounds like the 501c could offer the same price as a competing offer, but also dangle a carrot of a tax deduction?", "replies": [{"id": "iryo3q5", "text": "Precisely. \u201cBargain Sale\u201d is a bit of a misnomer. You don\u2019t have to sell it under market or even at a discount. The goal is market price PLUS an appraisal that far exceeds sales price as a \u201cdonation.\u201d It\u2019s really just a tax loophole that can be beneficial in the right circumstances.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iryiysu", "text": "Completely valid.  I write appraisals for them all the time.  I just wrote one tonight actually.", "replies": [], "depth": 1}, {"id": "iryk0c8", "text": "Yep. Legit if seller cares about the cause it can be worth it.", "replies": [], "depth": 1}]