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.
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.
The commercial real estate market experiences highs and lows as the economic trends shift due to politics, policies or other economic events. As brokers, continuously adding a few new options to the repertoire may help improve client relationships and grow the company. The IRS Section 170 Bargain Sale is becoming more in-demand by clients who want to minimize tax exposure. The Bargain Sale may be for such clients looking to sell performing assets or underutilized and distressed properties.
Businessman Investor Construction Sale Property Concept.
A qualified appraiser must perform the Bargain Sale valuation. The asset is compared to other property that is fully performing in the same or neighboring market. This valuation’s outcome may be higher than the original listing price. To learn more, please read an earlier post How Bargain Sale Valuations Work.
About the Bargain Sale
The IRS Section 170 Bargain Sale originates from the War Revenue Act of 1917 that the United States Government passed. It shares some similarities with the well-known 1031 Exchange, where the tax code is used to protect wealth and economic growth. However, there is a notable difference between a Bargain Sale and the 1031 Exchange. Instead of just deferring taxes, like 1031, the Bargain Sale provides immediate tax benefits that can be used the same year as the transaction and up to 5 additional years.
Nonprofit Qualifications
The Bargain Sale made to a nonprofit entity that is federally recognized by the 501(c)(3) criteria. It is considered best practice for the nonprofit to obtain validation from one of the charity monitoring organizations. These organizations, like GuideStar, rank the nonprofits based on the use of funds, fundraising, board members and activities related to their causes. All information about the nonprofits may be found on the monitoring agencies’ websites. This action provides transparency and allows Sellers to determine if they want to complete a transaction with the nonprofit.
Bargain Sale is “Not” a Donation
Although there must be a donative intent, combining the cash received at closing with a tax rebate, the Bargain Sale’s benefits may be immense. It is important to note that the Bargain Sale is not a donation. Cash is received at closing and is combined with the tax deduction benefit of the contribution between the appraised value and the cash received.
However, some transactions may have the appearance of a donation as the seller may decide to not take any cash in the transaction. As a result, commercial buyers may find themselves saving significant amounts of income tax by utilizing a Bargain Sale for their property disposition or tax strategy.
Searching for Assets
When taking advantage of the Bargain Sale for clients, brokers should consider looking for opportunities of almost any asset that has appreciated from its basis. By selling at a potentially higher valuation rate, as per the Bargain Sale terms, the broker may facilitate a win-win situation for the seller and the nonprofit organization. The seller gets the tax benefits, which is the difference in property value minus cash received at closing. Afterward, the nonprofit takes the property to either use or sell to raise funding for its charitable causes.
Brokers’ Incentives
As for the broker’s commission, it is based on the total financial benefit to the seller. As stated earlier, the total financial benefit is a combination of the cash amount and the federal and tax savings. The selling broker’s commission is usually based on the seller’s total financial benefit which is often near the list price.
Smart brokers looking to grow a business and their clients’ best interest should be informed about the Bargain Sale. Commercial transactions totaling over $8 billion are completed every year in the form of the IRS Section 170 Bargain Sale.
Welfont Can Help
Welfont has a wealth of experience with the Bargain Sale. We are the experts with over 10 million square feet of acquisition in more than 30 states. We are familiar with the Bargain Sale Appraisal process and can help you achieve the most in cash and tax deductions for your asset. If you would like more information, please visit our FAQ page or email us at info@welfont.com. We can help provide answers for your specific property.
Written by The Welfont Group, LLC
The content found on this Welfont.com page is for educational purposes only and is not intended to constitute legal, financial, or tax advice. Please consult your attorney, accountant, tax or other advisers before acting on any information found here.
From truck campers to travel trailers and toy haulers, if you are looking for top quality, The Lance Company has a history of providing some of the best RVs. So, if you are looking for one of the leading in innovative RV travel innovations, the 2016 Lance models are available at our Lazydays Tampa and Tucson lots.
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If you want to find a reliable RV built from the ground up to be environmentally friendly, please visit our Lazydays Tampa and Tucson locations or log online and schedule an appointment for a sales expert to help you with your selection.
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Amazing! It’s the one word Keystone RV uses to describe its 2016 Passport Grand Touring. Unlike other lite weight travel trailers, the Grand Touring has full-size camper features with full-size amenities. Despite having the larger size than most other light-weight travel trailers, today’s half-ton vehicles and SUV’s have no problem towing the 2016 Keystone RV Passport Grand Touring.
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The Grand Touring’s 13-floorplan options, load equalization axles, a folding entry-assist handle, an entertainment center with an LED TV, and pocket doors. On some floorplans, there is a bumper-mount grill or a complete outdoor kitchen. Enjoy hot showers with a gas/electric DSI water heater for long hot showers.
If you would like to learn more about the 2016 Keystone RV Passport Grand Touring, please visit our Lazydays Tampa or Tucson locations. You can also visit our inventory pages online. Don’t forget to schedule an appointment to have one of our experienced sales experts guide you through the selection and purchasing process.
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The RV Authority welcomes your input. If you have an idea for a blog article or would like to write and submit an article about your RV adventures, please click here to email us your suggestions or questions.
