by Joseph Garnett | Oct 1, 2018 | Copyeditng
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.
by Joseph Garnett | Oct 1, 2018 | Copyeditng
Edited by Joseph Garnett, Jr.
170 Transaction Can Reap Positive Results for All
A 170 Exchange often benefits all parties of the transaction, and it also possibly impacts the economy as a whole. Sometimes, during a real estate transaction, only the seller receives any significant economic boost. The buyer usually may have to rely on a bank loan and, therefore, creates debt. However, with a 170 Exchange, everyone who participates in the transaction will possibly leave with a better economic perspective.
The Seller
As the economic benefit spreads through a 170 Exchange, the seller may be the first person to benefit. The seller may own an underutilized or underperforming property. Perhaps it is an old warehouse that is costing more to maintain than it is bringing in. Or it could be a weak investment property where the costs outweigh the benefits.
So, the owner decides to sell and utilizes a 170 Exchange. The seller can then remove the property from their portfolio for a lower cost, but reap the benefits of possibly receiving the full ideal use value as a tax deduction. This process takes a hard-to-sell property is off their hands, but they likely receive the full valuation amount as a tax deduction. By selling a property this way, all parties involved may benefit from the transaction.
The 170 Exchange generally impacts the economy positively, by potentially bringing cash to the seller and discounted assets to the buyer.
The Buyer
The nonprofit 501(c)(3) buyer may also benefit economically from this transaction. They can purchase a property to use, or as a portfolio item to boost their assets, at a reduced cost. The reduced price is vital as it enables the not-for-profits to spend their money wisely and keep as much as they can to continue doing their charitable work. The economic benefit of this transaction can mean that the charity has more money in its pocket and also has a property that they can utilize or enjoy the benefits.
The Community
The local community may also be fortunate enough to benefit from a 170 Transaction. The economic benefit from the seller can be felt throughout the city by wage increases, and better work conditions from the tax benefit. By legally reducing taxes, the seller may have the ability to spend more on workers and processes to ensure the business is growing.
Secondly, by selling a disused property, the area can be revitalized and bring in new work opportunities for locals. Revitalizing under-performing properties may also raise land values for locals and potentially provide economic benefits through that revenue stream as well.
170 Exchange Impacts the Economy
Lastly, the community may feel the economic impact of a 170 Exchange by the cash flow that comes with any property sale. A significant property sale in the local area may bring new income, possibly flowing through the community.
In general, a 170 Exchange impacts the economy and possibly benefits all parties involved in the transaction. Fortunately, the local community may also enjoy the financial gain. This process demonstrates how the economic impact of a 170 Exchange is positive. Real estate brokers wanting to do something good for the community should consider presenting the transaction to their clients.
by Joseph Garnett | Oct 1, 2018 | Copyeditng
Edited by Joseph Garnett, Jr.
What is a 170 Exchange?
The 170 Exchange, also known as a Bargain Sale, was created by Congress and is overseen by the IRS. A 170 Exchange is an IRS-approved transaction that allows a property seller to receive some cash at closing for their property. But more importantly, it enables a seller to save money that’s typically spent on income taxes. How? In addition to cash, the property seller receives a sizable tax deduction from the nonprofit that acquires it.
How is a 170 Exchange different from a traditional sale?
There are two main ways that a 170 Exchange transaction is different from a traditional sale:
- A 170 Exchange uses more than one method to determine the Opinion of Value (the actual worth of the building). A conventional deal will typically set the price of a property based on the value of similar properties nearby. Often, this means that a property will go on the market for less than it is worth.
A 170 Exchange permits appraisal of the building for its “Best and Highest Use.” The process includes three different types of evaluations rolled into one. Once appraised for a 170 Exchange, the property’s value can almost double based on the IRS Publication 561 appraisal methodology.
- In a traditional sale, sellers may pay anywhere from ¼ to almost ½ of their profits from the sale in taxes. In a 170 Exchange transaction, the seller is donating the building to a qualified nonprofit. Instead of paying huge taxes, they receive a significant tax write-off for their property donation.
Where does my nonprofit fit in the process?
170 Exchange transactions require nonprofits to partner with, and that’s where you come in. As a nonprofit, you will never have to put up a single penny on any of these real estate transactions. You may never have to deal with the logistics of the donation or closing. You can either keep the donated property or find a new buyer for the donated property. Most nonprofit partners will opt to have the property resold and receive the net proceeds of the sale.
So what makes a nonprofit a good fit?
The right nonprofit is well established, one whose mission can be supported by the brokerage and their corporate clients. Brokers are looking for diverse nonprofits that support various causes around the US and internationally so that the seller has a broader choice of nonprofits.
So what does the process look like for you as a nonprofit?
A brokerage specializing in 170 Exchange transactions can manage the entire process and provide 100% of the funding needed for acquisition and disposition (selling/renting/disposing of the building) through investors. In many cases, the nonprofit is not responsible for providing or guaranteeing funds. The net proceeds after all expenses, like selling the building, cash put into the deal for the seller, etc.), remain with the nonprofit.
It is that simple. The 170 bargain sale is an excellent opportunity for your nonprofit to participate in the over $8 billion of 170 Exchange transactions that are processed every year.
by Joseph Garnett | Sep 29, 2018 | Copyeditng
Make an Economic Impact on Your Community with a 170 Exchange
Edited by Joseph Garnett, Jr. – Written by Mike Wolfe
While the bargain sale can bring cash and tax savings to a business, its economic impact often makes a real difference.
Statista.com, an online statistics service, says American cities have high vacancy rates. That rate is projected to be 32.9% in 2017 for industrial, retail and commercial buildings. We all know hard-hit cities like Flint and Detroit, MI, but there are many smaller less-known communities with similar problems.
In Huntsville, Alabama, city leaders are considering a rezoning effort to spur growth in the Cummings Research Park to stimulate the economy in that area. There are also plans to develop a start-up village for businesses.
Tampa, Florida is also experiencing a revitalization of the collegiate areas in north Tampa, where some properties have remained vacant for years. The project to revive the area includes transforming several structures.
A 2014 HUD (the US Department of Housing and Urban Development) report shows that Pittsburgh, Pennsylvania repurposed an empty lot into a “greening” project for local youth and McAllen, Texas converted an empty “big box” store into a library.
How can a 170 Exchange help your neighborhood? Think about a vacant building and how it is generating no economic energy at all. Imagine that you have connected with a nonprofit which turns the building into a library or housing for the homeless. Or perhaps the nonprofit repurposes your building into a hub for entrepreneurs to create their innovations.
170 Exchange Economic Impact Creates Jobs, Revitalizing Community
All the situations above generate jobs, providing for the community, and saving money for the city. For example, creating housing for homeless can revitalize a city in decline. Many times, government funds or grants can be work in tandem with your donation to complete the entire project for the nonprofit.
Perhaps, your company has been having trouble selling a vacant building and this year you’re expecting a large tax bill. Consider structuring a 170 Exchange with a qualified charity, who may then be able to repurpose that building to house any number of uses that benefit the area where you live or work.
Maybe you believe your property needs too much work to be useful the way it is, then it might be good for “deconstruction” where a building is demolished, removing all reusable materials. What you are left with is a new usable space which could be used for a garden, a park or even a new building.
You may think a park wouldn’t stimulate the economy; think again. A park would need maintenance and security, which would create employment immediately. Additionally, a pool or community area would also create permanent positions for lifeguards, administrators or recreation specialists.
The cash and tax benefits of a 170 Exchange are very attractive, and making a charitable contribution looks good too. But this new way of looking at your property – repurposing – entices businesses in another way. Everyone wants to boost our economy. And, being one of the organizations that accomplish this, makes the company profile stronger, and receives its own economic incentive.
Let’s review how:
With a 170 Exchange, often referred to as a Bargain Sale, the seller finds a nonprofit buyer. The participants exchange the property for an agreed amount of cash at closing, while the seller receives considerable tax credits. For companies with large tax liabilities, this equates to sizable cash infusions in the form of tax relief.
A repurposing project through a nonprofit for a hard-to-sell property brings economic advantages to your community. This process is definitely a win-win scenario for all parties involved.
by Joseph Garnett | Sep 29, 2018 | Copyeditng
Edited by Joseph Garnett, Jr. – Written by Mike Wolfe
Becoming an MAI appraiser is no easy task. The MAI designation means that an individual is affiliated with the Appraisal Institute, a highly esteemed worldwide organization for real estate appraisers. Designated members of the Appraisal Institute, or MAIs, have to jump through several hoops to prove their knowledge and sound moral character to get the designation, including fulfilling specific educational and professional requirements. Here, we’ll break down all of the different elements to becoming an MAI appraiser.
Getting to be an MAI-Designated Appraiser: Education Requirement
First, an appraiser must have extensive real estate knowledge and an in-depth understanding of the appraisal process. To prove this knowledge, an appraiser must have:
- An undergraduate degree: All MAIs must have an undergraduate degree. This degree can be in any subject, but it must be from a fully accredited four-year university.
- A passing grade on 13 different examinations: MAIs must pass a series of rigorous tests. These exams cover advanced income capitalization, advanced market analysis, HBU, and quantitative analysis. These exams include a total of 400 hours of classroom instruction and demonstrate that an appraiser has a comprehensive knowledge base.
- A passing grade on the General Comprehensive Exam: In addition to the 13 exams mentioned in the above point, all MAIs must also pass a General Comprehensive Examination. This intense two-day, four-part modular exam is notoriously challenging, as the scope of the topics examined is quite broad. The exam can cover pretty much anything in the Appraisal Institute’s required examinations, current appraisal literature, and the Appraisal Institute’s Bylaws and Regulations, which means that candidates must be thoroughly prepared.
Getting the MAI: Experience Requirements
To become an MAI-designated appraiser, candidates need more than just comprehensive, in-depth knowledge. They also need professional experience. To receive the designation, an appraiser must have credit for a minimum of 4,500 hours of specialized experience. The appraiser accrues the background over a minimum of three years. The experience ensures that those who receive the designation have a considerable amount of experience under their belts. Lastly, to prove their experience, candidates must also complete a demonstration report. This report ensures that they can fluidly write, substantiate, and defend a value proposition. Anyone with an MAI designation isn’t just an expert at the technical aspects of appraisal but also knows how to protect that value, a crucial skill.
The Value of an MAI in a 170 Exchange
When it comes to the 170 exchange, it can be incredibly advantageous to have an MAI on your side. An appraisal is a key part of the process. Getting a high appraisal is key to maximizing the value of the transaction. These experts have the experience and knowledge necessary to succeed in even the most stressful situations, helping ensure that you can get the right appraisal for your property and maximize your return.
Nick Chop’s full blog post can be found here.
by Joseph Garnett | Sep 29, 2018 | Copyeditng
IRS Section 170 Bargain Sale and its Conditions
Edited by Joseph Garnett, Jr. – Written by Mike Wolfe
As our regular visitors know already, the 170 Exchange is an amazing transaction by which an investor gets to do a good deed. The investor also cashes in on a dated real estate property’s value and receives a considerable chunk of very real immediate tax rebates. Consequently, the investor helps nonprofit organizations and the entire community. This process is truly an amazing opportunity for all involved. An ultimate win-win situation. It is not enough, however, to find a nonprofit and make the sale. Some conditions must apply for the businessperson to donate to get the tax benefits from the deal. Those conditions are outlined in the IRS Section 170 Bargain Sale, also known as the 170 Exchange.
To execute an IRS Section 170 Bargain Sale, certain conditions must be met. Conditions such as the seller must have a significant tax liability, and the buyer must be a nonprofit.
The Specifics of an IRS Section 170 Bargain Sale
The general outline of the deal is simple – a commercial real estate owner sells a piece of the property below its fair and full market value to a charitable organization. The difference between the sale price and total property value is the sum to be deducted from the donor’s income.
But there is more that needs to understand about the IRS Section 170 Bargain Sale. First, there is a list of commercial properties that can be a part of the 170 Exchange. Then there is the value assessment, which will be influenced by things like mortgages attached to the property, which will reduce the amount you can claim for the rebate.
Additionally, the entrepreneur should have a sufficient level of taxable income to qualify. There is also a list of federally recognized 501(c)(3) entities, which are the only nonprofits allowed to participate in the 170 Exchange transaction on the buyer side. Finally, there should be two appraisals—one by an MAI Designated appraiser to evaluate it conducted within 60 days of the sale.
The Benefits of an IRS Section 170 Bargain Sale
Its incomparable benefits dictate the restrictions on the deal. Unlike the 1031 Exchange, the 170 Exchange offers not a deferral of taxes but an immediate rebate on the donated sum. Moreover, there is a significant chance of significant tax deductions from the Exchange for up to 5 years. The deduction, in addition to the immediate tax gain for sale.
Conclusion
If you want to learn more about this fantastic transaction, you came to the right place. We at The Welfont Group specialize in connecting entrepreneurs with nonprofits for this purpose. Ours is a long-standing record of excellence and diligent service. We help business people and nonprofits connect and benefit from each other and the entire community. Whether you are a commercial real estate owner wanting to donate or a nonprofit looking for donations, call us now, and we will be glad to assist you.
