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Chaitable Bargain Sales
What is a Charitable Bargain Sale?
It is a sale of your residence to World Vision at less than its fair market value. You receive cash from the transaction that you can use to purchase your next residence, or as a down payment on a retirement facility, plus a charitable deduction for the discount you took from the market value. The concept also applies to an outright donation of a residence where World Vision assumes the mortgage.
 How Does It Work?
You and World Vision agree to a purchase price that is less than the property’s fair market value as determined by independent appraisal. World Vision may pay the purchase amount upfront, or issue you an installment note for a mutually agreed upon term of years and interest rate. World Vision then liquidates the property. Result? You qualify for a charitable income tax deduction and avoid capital gains tax on the gift portion of the transaction; you can receive upfront cash for the move to your next home or receive income for a term of years, and you make a significant gift to World Vision.
What are the Advantages?
- A bargain sale is simple and inexpensive. The agreement is usually a couple of pages, and there are no significant legal expenses in setting it up.
- A bargain sale is flexible. The terms of the agreement—interest rate, down payment, term, frequency of payments, gift portion and tax deduction—are all negotiable and can be adjusted to fit your goals and objectives.
- A bargain sale is tax-efficient. It often produces better tax results than a traditional life-income gift.
EXAMPLE (based on 7.2% IRS discount rate)
You and your spouse donate a personal residence having an appraised value of $500,000, a cost basis of $100,000, and a mortgage balance of $75,000. Purchase price is $125,000; cash up front is $75,000; and the balance of $50,000 is payable over 5 years at 6% interest. Here are the calculations:
CHARITABLE BARGAIN SALE
| . |
Total
|
Sale Portion
|
Gift Portion
|
| FMV |
$500,000 |
$125,000 |
$375,000 |
| Basis |
$100,000 |
$25,000 |
$75,000 |
| Gain |
$400,000 |
$100,000 |
$300,000 |
SALE PORTION
| . |
Down
Payment
|
Note for
Balance
|
Interest Rate |
6% |
| . |
Number of Years |
5 |
| FMV |
$75,000 |
$50,000 |
Payment Start Year |
1 |
| Basis |
$15,000 |
$10,000 |
Number of Payments |
20 |
| Gain |
$60,000 |
$40,000 |
Date |
12/25/00 |
NOTE PAYMENT
| . |
Annual
|
Total
|
Monthly
|
| Allocation |
$11,600 |
$57,998 |
$967 |
| Interest |
$1,925 |
$9,623 |
$160 |
| Capital Gain |
0 |
0 |
0 |
| Tax-Free |
$9,675 |
$48,375 |
$807 |
SUMMARY OF BENEFITS
| Charitable Income Tax Deduction |
$375,000 |
| Capital Gains Avoidance on Residence* |
$400,000 |
| Remainder Capital Gains Spread Over Note |
0 |
| Cash Up Front |
$75,000 |
| Income Over Term of Note |
$57,998 |
| Charitable Gift to World Vision |
$375,000 |
*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.
Important: This example is for illustrative purposes only and is not intended as legal or tax advice. Consult your legal and tax advisors prior to making any decisions based on this data.
Email the World Vision Gift Planning Department, or complete the personal illustration form so that we can assist you.
Appreciated Securities
Bequests
Continuous Child Care Sponsorship Agreement
Pooled Income Funds
Charitable Gift Annuities
Charitable Remainder Trusts
Charitable Lead Trusts
Retained Life Estates
Charitable Bargain Sales
Charitable Vision Fund (a Donor Advised Fund)
Advisor-Managed Donor Advised Fund
Gifts of Other Assets
How to give other assets, such as: Retirement Plans, Real Estate, Closely-Held Stock, Partnership Interests, Tangible Personal Property, and Life Insurance.
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