YoungAssociates serves nonprofits in a variety of fields, including arts, history, and medicine

Bargain Sale

A bargain sale happens when an individual transfers an asset to charity and receives less than the fair market value in return. The fair market value less the value returned is a charitable gift.

The donor benefits from the bypass of gain and receives a charitable deduction on the gift portion, but must recognize taxable gain on the value returned to the donor. The charitable deduction is limited to 30 percent of the adjusted gross income, with a potential carry forward for five additional years. The deduction will normally exceed $5,000 and, therefore, must be based on a qualified appraisal. The appraisal must be made up to 60 days prior to the gift and not later than the date the taxpayer’s return is due (with extensions).