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.