There are two basic forms of donations – “Outright” and “Bargain Sale”. Outright donations are the donation of an asset or property with no cash involved. The second form of donation is a Bargain Sale donation which occurs when you sell property, for cash, to a charity at less than fair market value.
A Bargain Sale donation is considered to be part sale and part charitable contribution. By law, you may commonly deduct up to 50% of your adjusted gross income, and if your contribution is more than this percentage, you can deduct the remaining amount over the next five years. The bargain sale donation will generally allow you to deduct the fair market value of the property at the time the contribution is made.
In either situation the donor would receive a tax benefit equivalent to a percentage – based on the donor’s tax bracket – of the established “fair market” value of the donated asset which is often far greater than the cash value of the asset.
Vessel Ad in Boat Trader: 1998 35’ Formula 353 Fastech, loaded, excellent condition, asking $120,000
BUC Book Value: $236,000 (includes added value for asset location and excellent condition)
The Bargain Sale Offers: $60,000 cash plus $176,000 tax write-off
|Approximate Appraisal Value||$236,000|
|Gross Tax Benefit||$176,000|
|Multiply Tax Benefit by Tax Bracket
($176,000 x 45%)
|Add Cash Offered||$60,000|
The donor would receive half of their asking price in cash and would receive an additional $176,000 in tax benefits. If the donor’s income tax bracket is 45% the donor would realize a tax benefit of $79,200. Add the cash of $60,000 and the total net proceed of the bargain sale would be $139,200 or $19,200 in excess of the original cash asking price!