BTHE BARATELLI INSTITUTE · Mentoring at Scale
FOR DONORS WITH APPRECIATED REAL ESTATE · CLOSELY-HELD STOCK · ART · ANY ASSET WHERE LIQUIDITY MATTERS

When you want to give the asset to charity but you also need some of the cash, it's a bargain sale.

A bargain sale is two transactions on one contract: the donor sells the asset to charity for less than FMV. The IRS treats the portion sold for cash as a part sale (gain recognized on the proportionate basis) and the portion given as a part gift (charitable deduction for FMV minus sale price). It's the right tool when the donor has highly-appreciated real estate, closely-held stock, or art — wants to support a charity — but cannot afford to walk away from 100% of the asset's liquidity.

Part Sale
Cash to donor
Part Gift
Deduction to donor
Proportional
Basis allocation
Net Cash
After tax
YOUR BARGAIN SALE
1
Asset basics
2
Sale terms
3
Donor profile
4
Charity & deduction
5
Compare strategies
STAGE 1 OF 5

Asset basics

The economics of bargain sale work best on long-held, highly-appreciated property where the donor needs partial liquidity but wants the charitable benefit.

Real estate is the most common bargain-sale asset. Closely-held stock and art are second-most common. Cash is rarely bargain-sold (just gift the difference).
Independent appraised value. For real estate and art, must be a qualified appraisal under §170(f)(11). For closely-held stock, business valuation report.
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Donor's basis in the asset. For long-held real estate, often a small fraction of FMV — that gap is where the bargain-sale value lives.
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Federal LTCG (15-20%) + Net Investment Income Tax (3.8%) + state. For most affluent donors: 23.8% federal + state. For art / collectibles: federal LTCG of 28% applies.
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The bargain-sale arithmetic. The IRS splits the transaction proportionally. If you sell to charity for 40% of FMV, then 40% of your basis is allocated to the sale portion (and you recognize gain on the difference between sale price and that allocated basis), while 60% of the asset is treated as a charitable gift (and you deduct FMV × 60%). The donor walks away with cash from the sale portion (net of tax on the recognized gain) plus a charitable deduction worth the marginal-rate value of the gift portion.
STAGE 2 OF 5

Sale terms

Sale price to charity must be less than FMV (or it's just a sale, no charitable component). Common ratios: charity pays 25%-60% of FMV — the donor gets that as cash, charity gets the remainder as a gift.

What the charity actually pays you in cash. Must be less than FMV. Common: 25-60% of FMV depending on donor's liquidity need and the charity's capacity.
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Real-estate gotcha: if the charity assumes a mortgage as part of the transaction, the assumed debt is treated as part of the sale price for §1011(b) bargain-sale-allocation purposes. The donor recognizes gain on the debt assumption.
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Closing costs, legal fees, transfer taxes, broker fees if any. Allocated proportionally between sale and gift portions.
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Long-term (held 1+ year) qualifies for the LTCG rate on the sale portion and FMV deduction on the gift portion. Short-term loses both advantages and is rarely the right structure.
STAGE 3 OF 5

Donor profile

Marginal tax rate determines the value of the deduction. AGI determines how much of the deduction is usable in year 1.

Used for the deduction-ceiling test. Cash to public charity: 60% AGI. Appreciated long-term capital-gain property to public charity: 30% AGI. Excess carries forward 5 years.
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Federal + state combined. Drives deduction value at funding.
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How much cash the donor needs from the asset. The single most important driver of the sale-price-to-FMV ratio.
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If the donor would otherwise hold the asset until death and benefit from the §1014 step-up in basis, the bargain-sale vs hold-until-death comparison matters. With step-up, holding eliminates the gain entirely.
STAGE 4 OF 5

Charity & deduction

Public charity vs private foundation drives the AGI ceilings. Related-use rule applies to tangible personal property (art, collectibles).

Public charity (60% / 30% AGI ceilings). Private foundation (30% / 20% AGI ceilings, capped at basis for non-cash). The PF cap is a major restriction — for low-basis assets, bargain-sale to a PF is rarely the right structure.
For tangible personal property: if the charity uses the asset for its exempt purpose (e.g., art museum displays the art), donor deducts FMV. If unrelated use (charity sells for cash), donor deducts basis only — major hit on highly-appreciated art.
STAGE 5 OF 5

Compare strategies

Bargain sale vs outright donation vs outright sale — net-cash-to-donor side-by-side.

HERE — TRY THESE. THEY MAY HELP.

No forms. No funnel. Just the work.

The Institute publishes practitioner reference. No signup, no email capture, no sales call. If you're moving forward with a bargain sale, your next call is to a trust attorney and a qualified appraiser. We publish the framework so the conversation with your advisors is informed.

Family Office Guide Estate Planning Decoded All free tools
Practitioner reference. Outputs are estimates based on user inputs. Bargain-sale-to-charity transactions are governed by IRC §1011(b) and §170; the §1011(b) basis-allocation rule requires the donor to allocate cost basis between sale and gift portions proportionally. Non-cash gifts over $5,000 require a qualified appraisal under §170(f)(11). For tangible personal property, the related-use rule under §170(e)(1)(B)(i) controls whether the deduction is FMV or basis. Mortgage assumption is treated as part of the sale price for §1011(b) allocation. State income-tax and transfer-tax treatment varies. Do not execute a bargain sale without a trust/tax attorney AND a qualified appraiser. This is not financial, tax, or legal advice.
WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator pairs with Family Office Guide and Estate Planning Decoded.
The tool gives the bargain-sale arithmetic. The guides give you the surrounding framework — the bargain-sale-vs-CRT-vs-outright decision tree, the §1011(b) allocation discipline, the related-use rule for tangible personal property, the bargain-sale-of-residence-with-retained-life-estate structure, and how bargain sale coordinates with the broader estate plan.
Methodology references: FO Guide Ch 9 (Philanthropy operating model) and Estate Planning Decoded Ch 7 (Real-estate-driven charitable strategy).
Family Office Guide → Estate Planning Decoded →
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, or appraisal advice, and they do not create a fiduciary, attorney-client, or accountant-client relationship of any kind.

Estimates based on your inputs. Bargain-sale-to-charity transactions are governed by IRC §1011(b) (basis-allocation rule) and §170 (charitable deduction). Non-cash gifts over $5,000 require a qualified appraisal under §170(f)(11) and Treasury Reg §1.170A-17. The related-use rule under §170(e)(1)(B)(i) controls deductions for tangible personal property. Mortgage assumption is treated as part of the sale price for §1011(b) allocation purposes. The 30% / 20% / 60% / 30% AGI deduction ceilings vary by charity type and gift composition. State income-tax and transfer-tax treatment varies materially.

Consult your own qualified professionals before execution. Do not execute a bargain sale without (a) a trust/tax attorney experienced in §1011(b) bargain-sale design, (b) a qualified appraiser meeting §170(f)(11) requirements for non-cash gifts over $5,000, and (c) a CPA who can model the basis allocation and AGI-ceiling carryforward in your specific tax year.

Co-branded versions: If a professional advisor's name and contact information appear on this tool, that advisor has elected to make the tool available to clients as a courtesy.

Educational references and tools — not legal, tax, accounting, or investment advice, and not a recommendation to buy or sell any security. Consult a qualified professional about your specific situation. © 2026 The Baratelli Institute.