Bargain Sale
Definition and meaning of Bargain Sale in real estate.
A bargain sale is the transfer of real estate to another party for a purchase price that is intentionally lower than the property's current fair market value.
In more detail
This transaction is most commonly used in charitable transactions where a property owner sells land or buildings to a non-profit organization or government entity. The difference between the fair market value and the actual sale price is considered a charitable contribution, which may qualify the seller for a tax deduction.
Outside of charitable contexts, a bargain sale might occur between family members, although this can trigger federal gift tax implications. Parties involved in these transactions should obtain a professional appraisal to document the fair market value for tax purposes.
Key facts
| Category | Buying & Selling |
|---|---|
| Primary benefit for sellers | Potential income tax deduction for the donated value |
| Required documentation | A certified independent appraisal |
| Commonly used by | Land conservation groups, universities, and charities |
An owner sells a scenic tract of land to a local conservation group for a price below its appraised value, claiming the discounted portion as a charitable contribution on their tax return.
Frequently asked questions
Is the discount on a bargain sale taxable?
For charitable sales, the discounted portion is generally treated as a donation and is not taxed as a gain, though the sale portion is subject to capital gains tax. For non-charitable sales, the IRS may view the discount as a taxable gift.
Why would a seller choose a bargain sale over a standard sale?
A seller might choose this option to support a charitable cause, reduce their capital gains tax liability, and receive a charitable write-off while still collecting some cash from the sale.