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A bargain sale is a transaction in which a donor sells an asset to a nonprofit for less than its fair market value. The difference between the asset's fair market value and the sale price is considered a charitable contribution. This can be beneficial for both parties: the nonprofit acquires assets it needs at a reduced cost, while the donor potentially receives tax benefits from the transaction. Additionally, the donor can reduce capital gains tax liabilities if the asset has appreciated in value, as they are only taxed on the amount received, not the total appreciation. Bargain sales are often used for real estate, appreciated securities, or other valuable assets and can serve as a creative fundraising tool that benefits both the donor and the receiving organization, so long as it aligns with the nonprofit’s mission and addressing its needs.
A bargain sale involves selling an asset to a nonprofit at a price below its fair market value, allowing for a charitable deduction. In contrast, a traditional sale involves selling an asset at its market value with no tax benefits for the seller.
Typically, assets such as real estate, stocks, or collectibles can be sold in a bargain sale. However, it’s crucial to ensure that the asset aligns with the organization’s mission and holding capabilities.
The donor may deduct the difference between the fair market value and the sale price as a charitable contribution on their income tax return. Additionally, they will only pay capital gains taxes on the amount received from the sale, not the full appreciation of the asset.
While not as common as outright donations or traditional fundraising events, bargain sales can be an effective and creative way to fundraise, particularly when dealing with specific assets or when donors want to support a nonprofit in a unique way.