Is your church in the market to buy property? A church may be acquiring land for a new building, acquiring land and/or houses around the church to expand its campus, or acquiring property for other ministry purposes. Churches have negotiating power at the bargaining table when working with sellers.
When the seller is willing to receive a discounted price on the property, the difference in the qualified appraisal value and the sales price can be a charitable income tax deduction. If the seller has a capital gain on the property (qualified appraisal value is greater than the cost basis), then the seller can also bypass some of the capital gains tax. The bottom line is a church can offer some tax benefits to a seller to help at least partially offset a discount on the asking price. The seller receives the sales price from the church plus the tax benefits and the church saves money by paying less for the property.
For example, a seller is asking $250,000 for a piece of property. A church offers $175,000 and can provide a charitable deduction for the difference in a qualified appraisal obtained by the seller and the actual sales price. A sales contract is signed by both parties that includes wording referencing this pricing difference for the sake of helping to document the charitable income tax deduction. If the seller does not already have a qualified appraisal on the property, he/she obtains the appraisal. The appraisal value provided by the appraiser is $275,000. The difference in the appraisal value ($275,000) and the sales prices ($175,000) is considered a charitable income tax deduction to the seller. If the amount of $275,000 is greater than the seller’s cost basis, he/she can also bypass some of the capital gains tax for an additional benefit.
For a charitable bargain sale, it is crucial to have the proper wording in the sales contract for the charitable income tax deduction. There is also follow-up paperwork that needs to be provided to the seller. For help with these steps, please contact Jeff Steed at the Southern Baptists of Texas Foundation, firstname.lastname@example.org.
Churches have negotiating power when buying property that can save them money and help them to be better stewards with God’s resources. Those savings could be used for other ministry efforts to advance the kingdom!