Part Donation, Part Sale
In a charitable bargain sale, you sell your real estate or securities to The Nature Conservancy for less than fair market value. The difference between market value and the purchase price represents your donation, which qualifies for an income tax deduction and is exempt from a capital gains tax.
How It Works
- You sell real estate or securities to TNC for a price below the appraised market value, resulting in a transaction that is part charitable gift and part sale.
- The Conservancy may pay the purchase amount up front or issue an installment note for a number of years and an interest rate that is mutually agreed upon.
- With real estate, TNC may use the property, but usually sells it and uses the proceeds for purposes specified with your gift.
Benefits
- Receive an income tax deduction for the appraised market value of the donated portion of the property.
- Pay no capital gains tax on the donated portion of the property.
- Use cash from the sale portion to retire a mortgage or purchase other property.
- Gain satisfaction in making a significant gift to TNC during your lifetime.
More Information
- As with all gifts of real estate, TNC must review and approve the transfer before the bargain sale can be completed.
- Transferring real estate or securities that are not publicly traded requires securing an independent appraisal to establish the property's value for the charitable deduction.
- Transferring property that carries a mortgage or other debt can result in income tax liability.
Example: You plan to tap into your current home’s equity to pay entry fees at a retirement facility. But your home has appreciated significantly over the years, and you would like to use some of the excess value to fund a gift to TNC in the way of a charitable bargain sale. The first step is to secure an independent appraisal stating the worth of the house. You learn that it is worth $1,000,000; TNC pays you $600,000.
| Fair Market Value | $1,000,000 |
| Cost Basis | $200,000 |
| Capital Gain | $800,000 |
| Selling Price | $600,000 |
| Charitable Deduction | $400,000 |
| Donation portion of transaction ($400,000 / $1,000,000) | 40% |
| Capital gain related to donation (.40 x $400,000) |
$160,000 |
| Purchase portion of transaction ($600,000 / $1,000,000) |
60% |
| Capital gain related to sale* (.60 x $800,000) |
$480,000 |
NOTE: The first $500,000 (for a couple) or $250,000 (for an individual) of capital gain on a primary residence is excluded from tax, so neither portion of gain was taxed in this example. If a different piece of property had been donated, the $480,000 gain related to the purchase would have been subject to capital gains tax.
Questions?
For more information, contact one of our gift planning experts, or request a proposal.