IRC 170 Bargain Sale Explained. Compliments of Golf Courses For Sale. Click the GCFS logo to post a golf course for sale with world exposure in English and six-other languages.
An Internal Revenue Code (IRC) 170 Bargain Sale is a Purchase of Real Property by a registered 501 (C) 3 Tax Exempt Corporation. An IRS approved method that allows the seller to receive not only cash at closing but also a sizeable charitable tax deduction. A 170 exchange transaction basically combines the cash benefits of a traditional cash transaction with the tax- deductible benefits of a charitable donation.
Like the 1031 Exchange, the 170 Exchange was created by Congress (1917) and enforced by the IRS and is further explained in IRS Code Section 170, IRS Publication 526 & 561. The 170 exchange predates the creation of the 1031 Exchange. Where the 1031 Exchange allows the seller of a property to defer capital gains tax if the seller uses the proceeds, within a specified time period, to acquire another similar or like property, the 170 Exchange permanently reduces/eliminates income taxes for the seller and does not require the reinvestment of any of the sale proceeds.
In a 170 Exchange, the buyer must be a 501(C) 3 organization.
The purpose is to benefit (fundraising for) the "not for profit organizations" while giving substantial IRS and State tax deductions to the seller of the property. In many cases, the qualified seller will receive a larger cash benefit than a conventional (taxable) sale transaction. Below are the basic qualifications for a 170 Bargain Sale:
2. MAI Appraisal
IRS Publication 561 referring to IRC 170 allows an appraisal to be the highest and best valuation, with Buyer and Seller having NO COMPULSION to do the deal quickly (No pressure or timetable to close). The IRS Publication 561 provides for the largest tax deduction for the Seller which is in many cases substantially above the current market value
3. A Typical Transaction
A small amount
of cash to help with closing costs is offered (negotiable) + the
Depending on the amount of tax the seller owes the IRS/State and the type of entity which currently owns the property (C-Corp, S-Corp, LLC, Trust or Individually) the tax deduction can be taken in the same year the sale is closed or with a maximum of the year of closing + the next five (5) years (6 installments). A tax accountant will be able to confirm this and inform the seller of the amount of each year's deduction.
The economic effect is the same as an all cash sale, or a down payment and up to a maximum 5-year payout in cash.
To the qualified Seller, the 170 transaction will have a higher net cash realization than a traditional transaction thanks to the IRS/State involvement and the MAI (561) appraisal used. (The tax deduction equals the Appraisal minus the 501 (c)3 Buyer's Cash Down Payment)
A very simple prerequisite of a qualified transaction is "can the seller make maximum use of the tax deductions?" Offers can be made on all qualified situations. In many instances, the property does not have to be distressed to work economically for the Seller.
The properties are being purchased by Non-Profit organizations, a 501 (C) 3, that will then hold the property or sell to an end buyer. Once all expenses of the transaction and the carrying/closing costs are deducted from the eventual re-sale, the Non-Profit will realize a substantial contribution to their organization. Closing the transaction for the seller can take place in 30 to 60 days.
The IRS allows the higher appraisal price to be a tax deduction as a means to promote fundraising for registered 501 (C) 3 organizations
These transactions are ideal for:
For more information on the 170 Exchange transaction visit these links:
This information provided by Golf Courses for Sale, http://www.golfcoursesforsale.com
There are 501(c)3 Charitable Organizations Ready to Buy Right Now
Michael A (Mike)
Kahn, President Golfmak, Inc. Golf Business Consultant
Sales Associate #SL584427.