Case Studies Office

California – Office Property

Welfont - IRS Section 170 Bargain Sale - Office Property

Office Property – California – 21,280 Sq. Ft. on .34 Acres


The Opportunity

This two-story property built in 1982 was one of 18 locations operated by the family-owned Milan Institute.

Historically, many sellers who have used the IRS Section 170 Bargain Sale (commonly known as the Bargain Sale) were having difficulties selling their properties for various reasons including soft market conditions, location or the condition of the properties. However, in this instance, the sellers were not having difficulties generating interest in the location. It was just a situation in which the Bargain Sale was the best option. Why? The seller had owned the property for a long time and as a result they had reduced the basis down to zero. This along with the seller’s sizable income from all sources created a perfect situation where a Bargain Sale would result in a healthier bottom-line for the seller by avoiding significant capital gains and recapture taxes that would have resulted from a traditional sale.

 

Welfont - IRS Section 170 Bargain Sale - Office Property

The Proposal

Welfont contacted the property’s listing broker from Cushman Wakefield and presented an IRS Section 170 Bargain Sale offer from one of our nonprofit clients. Along with the offer, Welfont’s agent educated the broker on the history of this 100+ year old transaction, provided supporting documentation and examples of how other sellers had utilized the Bargain Sale transaction in the past.

 

Welfont - IRS Section 170 Bargain Sale - Office PropertyThe Process

The broker, poised with an offer, a Letter of Intent (LOI), supporting information and his newly acquired Bargain Sale knowledge, presented to the seller along with his recommendation to accept. Once the LOI was signed, a Purchase and Sale Agreement (PSA) was drafted based on the terms of the LOI and delivered to the seller. Both parties agreed to cash at closing and the PSA was fully executed. After due diligence was finished, and a Bargain Sale appraisal was completed, the transaction was finalized.

 

The Result

  • The owner was able to sell the property in a way that netted him significantly more cash than he would have received through a traditional sale as a result of the sizable tax deduction generated by the Bargain Sale transaction.
  • The nonprofit will benefit from the proceeds of reselling the property to further its mission.
  • The broker received a commission equal to a full-price offer.

 


The examples, situations and hypotheticals contained in this document are intended for educational and informational purposes only. Welfont highly recommends you obtain the advice of your financial, tax and legal professional before making any financial and or contractual decisions. Welfont makes no guarantees or warranties in regards to the accuracy of the information herein contained. Welfont accepts no responsibility because of any actions you may take after reviewing this document. This document is not intended to be legal, tax or financial advice. Welfont Reserves All Rights.

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