What’s a Section 170 Bargain Sale?
A "170 Bargain Sale" can be an excellent 1031 Exchange Exit Strategy!
Sometimes it’s better to take less money for a piece of investment real estate if the trade off is a huge tax break on the sale. For example, if you or your business is expecting to earn a substantial income over the next few years, you could benefit more from a large tax deduction than from the revenue of a traditional sale. Find out if it’s right for you: Schedule a free Net Proceeds Comparison now.
An Internal Revenue Code (IRC) Section 170 Bargain Sale is not a tax deferral savings vehicle like a 1031 Exchange. In fact, the IRC Section 170, introduced in 1917, predates IRC Section 1031 which was introduced in 1921. The 1031 Exchange is a well-known tax-deferral real estate investment strategy that defers capital gains (rolled) into replacement property options. Those property options qualify in the exchange process as long as specific rules are followed. This is a great strategy for creating and maintaining generational wealth. By deferring capital gains, you can use tax savings as leverage to buy other real estate assets instead of paying the taxes on a traditional sale.
The 1031 Exchange path is typically a long-term decision because if you then make a traditional sale on a 1031 replacement purchase property, the deferred capital gains rolled in compounds with the current capital gains due on the sale will create an even larger tax bill than before! That might be acceptable if you intend to play through until death so the heirs can get a step-up in tax basis. But if that's not the plan, or if the potential of finding an acceptable replacement property isn’t promising, then a IRC Section 170 Bargain Sale may be a better tax mitigation or potential partial tax exclusionary option.
The IRC Section 170 Bargain Sale is for owners of real estate who have a philanthropic desire to contribute to a qualified non-profit entity. Although a qualified intermediary is not required, as with a 1031 Exchange, and neither are specific mandated timelines, it is best to use a reputable and experienced real estate firm that specializes in this type of sale to ensure it is performed correctly.
Schedule an appointment online now and we’ll help you determine preliminary eligibility and connect you to an experienced team of agents and their network of qualified non-profits. If terms are met with negotiations, you could receive cash and a very favorable tax deduction—currently up to 60% Annual Gross Income (AGI) for one tax season within the year of the disposition sale. Depending on the amount of deductions available, future tax deductions beyond the first year may be available, spread over an additional 5 years, to offset future earnings. Plus, a 1031 Exchange can be used for the cash portion of the sale to defer any taxes that cannot be immediately eliminated (we can also help you with this process).
The IRC Section 170 Bargain Sale may be the best tax savings option for those with prior 1031 Exchanges looking to sell real estate without having to continue to exchange and defer capital gains. It may also be the best option in cases where high tax savings are needed, whether it’s due to high net worth, expectation of high future earnings, or a long length of ownership of assets that depreciated and/or have exorbitant amounts of capital gains taxes attached. There is only one way to know for sure…
Schedule a free consultation today!