Charitable Bargain Sales
Gift Example
You're ready to move to a retirement facility across town. You know that you will need some of the equity in your current home for the entry fees, 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 Woodland Healthcare Foundation.
You decide to transfer your home to the Foundation through a charitable bargain sale. You secure an independent appraisal stating that the house is worth $1,000,000, and the Foundation agrees to pay you $600,000.
What are your benefits?
| 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 |
* The first $500,000 (for a couple) or $250,000 (for an individual) of capital gain on your primary residence is excluded from tax, so neither portion of gain was taxed in this example. If you had donated a different piece of property, the $480,000 gain related to the Foundation's purchase would have been subject to capital-gains tax.
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