Calculations for Charitable "Bargain Sale"?

Calculations for Charitable "Bargain Sale"?

Forum topic posted in Forum on 19 April 2016| 1 comments
audience: | last updated: 19 April 2016
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Joined: 04/19/2016
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I've read some calculations of the tax benefits of "bargain sales" but they always seem to have a significant basis. If an owner of an almost fully depreciated rental building wishes to engage in a bargain sale to a charitable institution, what are the tax benefits in the following example?

The building has been owned by an individual for decades and now has a tax basis of say $100,000. The building is appraised at $10,000,000 and the owner is willing to sell it to the charity for $7,000,000. He does not want to get involved in any sort of an annuity, he simply wishes to receive the $7M outright. What tax benefits will the seller receive from this sale? Many thanks.

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Joined: 04/12/1999
Points: 30
Re: Calculations for Charitable "Bargain Sale"?

I don't suppose you are still waiting for an answer on this, but it seems to me your main issue is going to be the reduction rule, which will have the effect of disallowing a deduction for any portion of the spread between adjusted basis and FMV that would not have been long-term gain had the property been sold. Basis would be allocated between the sale and gift elements basically seven to ten, but then (a) the taxpayer would recognize ordinary income on 7/10 of the depreciation recapture in excess of straight line, and (b) the gift element would be reduced by its share of the accelerated depreciation.

7520 Rates: October 2.2% September 2.4% August 2.4%

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