Bargain Sale as Charitable Gift
A bargain sale is just what the phrase implies. It is a sale of property to charity at a bargain price; that is, for less than the property's fair market value. A bargain sale is also referred to as a donative sale because it is treated for tax purposes as in part a gift and in part a sale. When you sell property to charity at a bargain price, you are deemed to have participated in two separate transactions for tax purposes: (1) a sale, and (2) a charitable contribution. With regard to the sale portion, you are subject to income tax on your pro rata share of the property's appreciation. However, with regard to the charitable contribution portion, you are entitled to a charitable contribution deduction. The amount of the charitable deduction is the difference between the fair market value of the property and the sale price (subject to limitations). For tax purposes, each transaction is treated separately on your tax return.