I have always appreciated how the high-quality education I received at Madison enabled me to have a successful life in the corporate world |  | Many of our friends approaching retirement would be gratified to give their home to us to make a significant impact on our work as they downsize or move to a sunnier climate but need cash for a down payment on their next home. In fact, if you have considered giving your appreciated real estate to us or downsizing, you may not realize that you can do both in an arrangement that actually recoups some of the property's value for you and meets your personal, charitable, and financial goals.
With a bargain sale arrangement, you may transfer an asset to the UW Foundation for less than its fair-market value. The end result is a part gift and part sale of the asset to the UW Foundation.
For example, Jim B owns a house valued at $600,000 that is adjacent to a UW Foundation property. The UW Foundation would very much like to own this home in furtherance of our exempt purposes, and we initiate a discussion with Jim about the possibility of a gift of the residence.
Jim, a widower with children who live in other states, has been considering downsizing. After consultation with his advisor, Jim responds with a counter offer to sell the property to the UW Foundation. After some negotiations, Jim and the UW Foundation agree on a sale price of $350,000, the original cost of the home. As a result: |
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- Jim is entitled to a charitable deduction of $250,000 ($600,000 fair-market value, or FMV, less $350,000 cost basis). This provides Jim with an income-tax savings of $82,000 in his 33% bracket.
- Jim receives $350,000 from the UW Foundation.
- Jim will have to recognize part of the gain in the home attributable to the sale portion.
| Recognized capital gain |
= |
Sale price x appreciation |
| FMV of home |
| RCG |
= |
$350,000 x $250,000 |
= |
$145,833 |
| $600,000 |
However, Jim can apply his $250,000 exemption against the capital gain and wipe it out.
- The UW Foundation will be able to put the home to good use in carrying out its exempt purposes.
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| What if, in the above example, the home had a mortgage on it—let's assume of $350,000—and Jim "sold" it for that amount to the charity thereby canceling out his debt?
The same results as above would ensue, except that Jim would not receive any proceeds from the UW Foundation.
Planning pointer: You may also use other assets in a bargain sale to the UW Foundation, if we are willing to accept the asset. Most commonly, marketable securities have been used in bargain sales.
Please contact us for our assistance with your gift plans. |
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