Bargain sales can provide an attractive alternative and a great strategy to large corporations

The current real estate markets provide an excellent opportunity for corporations, investors and owners of real estate to dispose of the assets utilizing a bargain sale. A bargain sale is basically where a charity buys a property at less than the property's fair market value. This means the seller should be able to deduct as a charitable tax deduction, the difference between the selling price to the charity and the fair market value of the facility, as a tax deduction. Most times after considering the time value of money, monthly holding cost of the facility and the marketing time, the net cash after tax could exceed an all cash distressed sale price. Although the transaction is a taxable event, the benefits of the transaction can outweigh the tax liability. Consider the following: you're representing a corporation that has a larger harder to sell real estate complex which may have outlived its time. The property probably has tremendous monthly holding costs in terms of real dollars, eating up management time and tying up capital resources, this can be another resource to consider. First of all, the property can generally be sold quicker which means all those cost associated with the facility end upon transfer. Secondly, the seller can generally create tremendous goodwill with the local community. Consider the case where a major employer closes a facility employing hundreds of employees. Instead of job loses, the vacating organization can help recreate those jobs back on the site by selling to a charity at below market value. This would enable the charity to redeploy the facility very quickly to perhaps a user who could recreate jobs back on the site. This is a great strategy which should be considered primarily with your larger corporations. When considering this approach, c- corporations under section 170 subsection (a) for any taxable year shall not exceed 10% of the taxpayer's taxable income. However, generally your corporations can typically use the entire deduction during the first tax year. If the deduction can not be used the first year, the same IRS Code allows the deduction to be carried forward for an additional five-years. In the case of an s-corporation or limited partnership, the deduction can be up to 30% of their adjusted gross income. Still not bad with all issues being considered. One important issue, the asset has to be of a long-term capital gain nature. The term "long-term capital gain" means gain from the sale or exchange of a capital asset held for more than 1 year. That's generally the type of real estate corporately owned. However, the real cash value of the donation takes the form of a tremendous tax saving provided via a tax deduction for the Fair Market Value of the property as established through a qualified appraisal. Bargain Sale Example A great example of a bargain sale we packaged was a facility located in upstate New York. The facility was your typical multi-building site containing some leased buildings with additional building available for lease. The property was well maintained, but required considerable hands on management. The property had great potential with considerable upside for the right purchaser. The owner had a solid appraisal showing its current market value taking into account all the conditions necessary to make the appraisal a qualified appraisal. Disposition Alternatives The condition of the property was good, since the owner maintained the facility and spent considerable financial; resources accomplishing that task. But the disposition options were difficult and would have required additional financial resources and years of hands on operations. * The first would be to continue to spend time renovating and leasing sections of the complex as they were absorbed into the marketplace. This approach would require substantial carrying costs for a number of years. * Another option, sell the property to an investor/ developer. However, any investor/developer would require substantial discounts in any purchase price offered. This option would require more cash in the form of holding costs. * The last option was to sell the complex to a 501(c)(3) not-for-profit. The owner considered the three options and after seeking professional accounting and legal assistance decided the best option would be to consider a bargain sale with a charity who could benefit from such a sale. After interviewing several charities and looking at what their mission was, the owner picked one charity to work with. The charity had a national mission, a mission the owner wanted to assist them with by offering a bargain sale to the charity. The process took several months and went well. Items to Remember * Owners/donors need to do due diligence on the charity. Look at their mission and how you as a seller/donor can help them. Look at their past performance and ask any questions you feel need to be answered. * As a donor/seller seek professional assistance from you accountant and attorney. Follow the IRS current tax code and notices. * Establish the fair market value through a qualified appraisal as required by IRS. * Beware of charities offering to provide the appraisal for your deduction. Ronald Peters is a licensed real broker at Peters & Associates, Saratoga Springs, N.Y.