BY: BRAYDEN SCHIFF
The most successful real estate transactions occur when all parties involved benefit, and the 170 Exchange, also known as a Non-Profit Exchange or Bargain Sale, is a win-win tax break that more owners, investors, and brokers should be aware of.
The 170 Exchange is a type of real estate transaction in which a property seller is able to use proceeds from the sale as a tax credit. This tax credit is referred to as a charitable gift tax receipt. It is considered a charitable gift because the seller donates their property to a charitable organization in return for a cash sale price that is lower than the appraised value. Therefore, it is a win-win situation because the seller receives a deferrable tax credit for up to 6 years, and the non-profit organization receives property to perform their charitable work.
The more of a discount the original owner sells at, the higher the tax credit. So, if the property is sold at a large discount, the non-profit organization could then turn around and sell it to an investor for a profit. This is another aspect of the win-win situation that would better the organization while the original owner benefits from the tax credit.
- The seller must obtain an official appraisal to verify the exact value the property is worth.
- The buyer must be registered with the IRS as a Non-Profit 501(c)(3). This allows the proceeds of the sale to be considered a charitable donation.
- The seller, purchaser, and appraiser must all sign IRS form 8283
Ideal Parties to Utilize a 170 Exchange:
- Owners who have significant projected revenue generated from other properties or businesses
- Owners who do not need the proceeds from the sale right away
- Owners who have offers on their building that are too low
- 501(c)(3) that has cash on hand
- Investor who is looking to purchase a property at a discount