IRS Section 170 Bargain Sale Offer Explained
Individuals, banks, and corporations can benefit from essentially all-cash offers by way of the buyer's cash and the seller’s pure tax savings. It is as good as cash. The strategy follows the IRS Code 170 Bargain Sale, whereby the seller pays the top tax rate of 39.6% on earnings from other sources. The buyer, a qualified 501(C)3 charitable entity purchases and either operates the golf course or sells the property at a profit that they can use for their activities.
The bargain sale golf course seller usually benefits greater financially than via a traditional sale. It's a long-standing strategy first written into law back in 1917 (https://welfont.com/faq/). It is estimated that there are over 20,000 of these real estate transactions done annually with an estimated value of $8,000,000,000. Typical bargain sales have been empty warehouses, strip malls, or older buildings. Only very recently has there been a focus on golf courses.
A Bargain Sale transaction is regulated by the IRS Code Section 170 because it relates to charitable contributions of non-cash transactions. IRS Publication 526 and 561 are two additional IRS publication guidelines that further help explain the guidelines for this type of transaction.
A Bargain Sale transaction is the same as any other real estate transaction with a buyer or seller and real estate agent. However, with the IRS Section 170 Bargain Sale, the buyer is a tax-exempt entity, and the seller desires to receive a tax deduction on a portion of the transaction. Therefore, special rules apply to this transaction. Some of the unique transactions features are the following:
The buyer must be a qualified tax-exempt nonprofit.
The seller must obtain a qualified appraisal if the asset is valued over $5,000 in value.
I was contacted by a brokerage firm as a connection to the golf course world through my experience, associations, and contacts in golf. We have already placed over $9 million in offers for hard-to-sell golf courses since April 1. Two of the golf course in that group have been on the market for over two years. In a bargain sale, it is possible to close as quickly as 30-days, but more realistically, 45 to 60-days.
In each case we encourage the sellers to have our bargain sale offers reviewed by tax attorneys, or accountants familiar with IRS bargain sales.
The magic of the bargain sale is the appraisal method allowed in a bargain sale, which makes the tax deduction valuable. It's because the bargain sale appraisal is usually from 1.5 to 2 times greater than a standard appraisal (such as required by a bank). Therefore, the tax deduction is 1.5 to 2 times greater than a standard appraisal. The combination of the cash portion from the buyer and the tax saving can result in a greater benefit than a traditional sale.
If you or your company meet the first criteria and would like to dispose of a golf course quickly, we can present you with a bonafide letter-of-intent (LOI) - usually within two weeks.
We work with and share with brokers anywhere. Call me anytime: 941-739-3990. If I don't answer your call leave a message and I will return your call.
Mike Kahn, Senior Consultant