Charitable Sale of Property
A Charitable Sale is the sale of real estate to a nonprofit organization for less than fair market value. The transaction is part sale of the property and part charitable contribution. The advantages to the seller include converting the property to a cash asset; the tax benefits of a qualifying charitable donation for up to six years; and making a meaningful gift to the community.
Here is how it works:
- Seller obtains a certified appraisal of the property
- Seller and nonprofit negotiate a sale price based on tax savings for the donation
- The tax deduction is the difference between the sale price and the appraised value
- The deduction for both federal and state tax purposes and the value depends upon the Seller’s tax rate
- The Seller carries forward any unused amount of the tax benefit for five more years (six years total to use the deduction)
- In most cases, in the donation to a nonprofit organization, the deduction cannot exceed 50% of the donor’s adjusted gross income in any one year (this percentage may vary depending upon the circumstances)
When filing taxes, the Seller completes IRS Form 8283 and attaches the appraisal to their return on the IRS form (requires both appraiser and the nonprofit signature)
Here is a hypothetical comparison of a private sale versus a charitable sale. While the net value to the seller is nearly identical in each transaction, the tax benefit to the seller is $150,000 through the charitable sale. (Please consult your tax advisor on your particular circumstances.)
