Legal Definitions - bargain sale

A bargain sale refers to the sale of property for a price that is less than its true fair market value. This difference between the actual sale price and what the property would typically sell for on the open market can have important legal and tax consequences, often related to income tax or gift tax, depending on the specific circumstances of the transaction.

Here are some examples to illustrate how a bargain sale applies:

• Charitable Donation of Property: An individual owns a rare antique car appraised at $200,000. They decide to sell it to a qualified non-profit historical society for $75,000. This transaction is a bargain sale because the selling price ($75,000) is substantially less than the car's fair market value ($200,000). For tax purposes, the seller might be able to claim a charitable deduction for the $125,000 difference, while also accounting for the partial sale.

• Intergenerational Property Transfer: A parent owns a plot of undeveloped land valued at $300,000. To assist their adult child, the parent sells the land to the child for $150,000. This is a bargain sale. The $150,000 difference between the land's market value and the sale price could be considered a gift from the parent to the child, which might have gift tax implications depending on the amount and other applicable tax laws.

• Employee Purchase of Company Stock: A startup company offers its early employees the opportunity to purchase company stock at a significantly reduced price, say $1 per share, when the fair market value of those shares is later determined to be $10 per share. When an employee exercises their option to buy these shares, it constitutes a bargain sale. The $9 per share discount received by the employee might be considered taxable income or a taxable benefit, as they acquired an asset for less than its true market value.