Selling appreciated property to Clarkson at a lower than fair market price value, with Clarkson recognizing the difference as a gift.
A donor may transfer an asset to Clarkson at some value below the market price, receive consideration (usually cash, or maybe a gift annuity) in return and also generate an income tax charitable deduction for a portion of the value of the asset. For this reason, a bargain sale is often termed “part sale, part gift.” For example:
A donor wishes to gift an antique to Clarkson but cannot afford to give the entire value of the property. The item was purchased for $25,000 and now has an appraised value of $100,000. The donor sells the item to Clarkson for $25,000 in a bargain sale. The donor may claim an income tax charitable deduction for $75,000, the difference between the sale price and the appraised value. The donor must also recognize the portion of the capital gain attributed to the sale price, in this case, $18,750 (see below).
Almost anything, from tangible and intellectual property to securities and real estate to business interests may be sold or exchanged in a bargain sale. In some cases, a bargain sale may be an interesting alternative to a gift-with-income plan. In this light, it is also possible to receive your payment in installments or to defer your payment for some period of time.
Because each sale/gift situation is highly unique, please contact the Annie Clarkson Society for further information related to your particular interests.
Your gifts to Clarkson may count in Clarkson fundraising campaigns, in your next anniversary reunion, and towards Roundtable annual recognition. Contact the Annie Clarkson Society for help related to your unique circumstances.
Tax and Financial Implications
The property involved in a bargain sale should be held long term (more than one year) by the donor.
If the donor itemizes on his/her income taxes, he/she may be eligible for an income tax charitable deduction in the year the sale/gift is made. Any excess may be carried forward for five additional years.
The donor may need to acquire and file with the income tax return a qualified, independent appraisal from a qualified appraiser to substantiate the amount of the income tax charitable deduction.
Because a sale is involved in the transaction, the seller/donor must recognize in the sale price some allocated portion of any capital appreciation. In the example above, the item appraised at $100,000 had a cost basis of $25,000, thus the capital gain is $75,000. Since the sale price of $25,000 is one-fourth of the appraised value, one-fourth of the capital gain ($18,750) is attributable to the sale price. The seller/donor will recognize capital gain of $18,750. Even so, the seller/donor still receives $25,000 cash and is eligible for an income tax deduction of $75,000.
Ordinary income property and property subject to mortgage or debt requires special consideration and recognition between the sale and gift positions.
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift. (rev. 9/2016)
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