Edited by Joseph Garnett, Jr.
Walk Away with a Greater Profit with a 170 Exchange or Bargain Sale
Bargain Sale profits can be higher than those from traditional sales.
“Actually, bargain sales don’t mean you’re losing money,” asserts this headline from a recent blog post by Douglas A. McCullough, Vice President of NAI Chase Commercial brokerage division.
His post confirms that a 170 Exchange, otherwise known as a Bargain Sale, can net a Seller more in the long run than a typical sale. “Many times, a traditional market approach doesn’t produce the desired result for the seller. The market demand may not be sufficient, or the market may be soft. A bargain sale approach may be the answer,” says McCullough.
Have you heard of the term “Bargain Sale”? Its name implies the buyer is getting a deal but not so much for the seller. However, under the IRS 170 regulation, the seller can essentially profit more than from a traditional sale, especially when a commercial property has been up for sale for a long time.
In his position at NAI Chase Commercial, McCullough certainly knows what he’s talking about when he explains, “Bargain sales occur when a property is sold to a charitable organization for less than the fair market value. The bargain sale will result in a charitable gift for the buyer, and a charitable contribution income tax deduction for the seller. This scenario is why a bargain sale approach could, for the right seller, generate a higher transaction value than a traditional sale approach.”
The Process of a Bargain Sale
The Welfont Group uses this tax strategy, the 170 Exchange, for many clients, to good advantage, especially in the case of those with a significant tax burden. The IRS Tax Code Section 170 was voted into law by the Federal government in 1917 to encourage philanthropy, by awarding a charitable contribution deduction to entities who donate the property to a qualifying nonprofit. Both structures and land qualify. Through these transactions, many charities have acquired buildings and land, which they have then repurposed to fit their own needs. Consequently, a fair number of companies and individuals have offloaded non-viable holdings, receiving cash at closing and a significant tax write-off. It’s a win-win situation for both parties.
Bargain Sale Requirements
- The buyer must be a qualified tax-exempt nonprofit.
- The seller must obtain a qualified appraisal if the asset is valued over $5,000 to determine fair market value.
- The seller may deduct the difference of the appraised value and sale price as a charitable contribution, receiving a tax deduction.
- The charitable deduction does, in fact, the equal cash infusion by relieving the seller of making a tax payment.
Fair market value is generally higher than a traditional appraisal because of temporary down market conditions and the need for a distressed sale. These factors are not part of the equation in an FMV appraisal for a 170 transaction. This price difference ultimately nets the seller a higher charitable donation value. Again, to benefit both parties, the seller must have, or have within five years, a corresponding tax burden. The deduction can be spread over that time frame and can be part of a long-term tax plan.
Conclusion
Welfont enjoys seeing McCullough’s post describe what they already do: create value for clients through a Bargain Sale. As the leader in 170 Exchange transactions, Welfont has $200 million in these deals. Welfont’s professionals can guide you through the process, helping you dispose of a white elephant property, solving a cash flow problem, and benefiting a nonprofit. We have made resources available to you online: a FAQ page and a video. Click here to visit our website at The Welfont Group. Take that first step towards tax relief and cash infusion. You can read McCullough’s full post by clicking here.
Through these transactions, many charities have acquired buildings and land which they have then repurposed to fit their own needs. Consequently, a fair number of companies and individuals have offloaded non-viable holdings, receiving cash at closing and a significant tax write-off. It’s a win-win situation for both parties.
Bargain Sale Requirements
- The Buyer must be a qualified tax-exempt nonprofit.
- The Seller must obtain a qualified appraisal if the asset is valued over $5,000 to determine fair market value.
- The Seller may deduct the difference of the appraised value and sale price, as a charitable contribution, receiving a tax deduction.
- The charitable deduction does, in fact, the equal cash infusion by relieving the Seller of making a tax payment.
Fair market value is generally higher than a traditional appraisal because of temporary down market conditions and the need for a distressed sale. These factors are not part of the equation in an FMV appraisal for a 170 transaction. This ultimately nets the Seller a higher charitable donation value. Again, to benefit both parties, the Seller must have, or have within five years, a corresponding tax burden. The deduction can be spread over that time frame and can be part of a long-term tax plan.
Conclusion
Welfont was gratified to see McCullough’s post describe what they already do: create value for clients through a Bargain Sale. As the leader in 170 Exchange transactions, Welfont has $200 million in these deals under its belt. Welfont’s professionals can guide you through the process, helping you dispose of a white elephant property, solving a cash flow problem, and benefiting a nonprofit.
We have made resources available to you online: a FAQ page and a video. Click here to visit our website at The Welfont Group. Take that first step towards tax relief and cash infusion.
You can read McCullough’s full post by clicking here.