Bargain Sale Charitable Gifts

18 Questions | Total Attempts: 106

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Bargain Sale Charitable Gifts

This quiz is part of the curriculum for the graduate course Personal Financial Planning 5325 "Introduction to Charitable Planning" from Texas Tech University. For free downloads of the audio lectures and PowerPoint slides for this course, or to learn about the online Graduate Certificate in Charitable Financial Planning at Texas Tech University, go to www. EncourageGenerosity. Com


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Questions and Answers
  • 1. 
    A bargain sale is
    • A. 

      The sale of an asset to a charity at less than fair market value

    • B. 

      When a percentage of the gross proceeds from the sale of an item are dedicated, in advance, to go to a charity

    • C. 

      When a percentage of the net proceeds from the sale of an item are dedicated, in advance to go to a charity

    • D. 

      When a donor finds an item needed by a charity available for sale at a discounted price, purchases the item, then gives the item to the charity

    • E. 

      When the charity sells an asset to a donor at less than fair market value

  • 2. 
    What is the general rule for how much of a charitable deduction a donor can claim as the result of a bargain sale?
    • A. 

      The donor may deduct the fair market value of the item given

    • B. 

      The donor may deduct the proceeds from the sale less the share of basis attributable to the sale portion of the transaction

    • C. 

      The donor may deduct only the cost basis of the item given

    • D. 

      Subtract the value of what you receive from the value of what you give; that amount is a potentially deductible charitable gift

    • E. 

      The donor may deduct up to 30% of his or her adjusted gross income

  • 3. 
    Which of the following transactions would result in a potential charitable deduction of $600,000?
    • A. 

      The donor gives land worth $1,000,000 to a charity in exchange for $400,000

    • B. 

      The donor gives a $1,200,000 house to a charity with a mortgage of $600,000

    • C. 

      The donor gives $900,000 in stock to a charity in exchange for a lifetime income with a present value of $300,000

    • D. 

      The donor makes a gift of appreciated artwork to a charity for display in the charity’s art gallery that has a fair market value of $600,000

    • E. 

      All of the above

  • 4. 
    Several years ago I purchased land for $200,000 in cash.  It has since gone up in value to $1,000,000.  The property is next to the campus of a small college (a public charity), and the college would like to have the land.  I sell the land to the college for $500,000.  What is my charitable deduction?
  • 5. 
    Several years ago I purchased land for $200,000 in cash.  It has since gone up in value to $1,000,000.  The property is next to the campus of a small college (a public charity), and the college would like to have the land.  I sell the land to the college for $500,000.  How much of the original cost basis is attributable to the sale portion of the transaction for purposes of calculating the capital gain?
    • A. 

      $100,000 (50%)

    • B. 

      $200,000 (100%)

    • C. 

      $500,000 (50%)

    • D. 

      $1,000,000 (100%)

    • E. 

      $0 (0%)

  • 6. 
    Several years ago I purchased land for $200,000 in cash.  It has since gone up in value to $1,000,000.  The property is next to the campus of a small college (a public charity), and the college would like to have the land.  I sell the land to the college for $500,000.  What is the capital gain resulting from this transaction?
    • A. 

      $200,000

    • B. 

      $400,000

    • C. 

      $500,000

    • D. 

      $800,000

    • E. 

      $1,000,000

  • 7. 
    Several years ago I purchased a quad-plex apartment building for $200,000 in cash.  It has since gone up in value to $1,000,000.  I have claimed depreciation deductions on the property of $50,000 and have make capital improvements to the property of $250,000.  The property is next to the campus of a small college (a public charity), and the college would like to have the building.  I sell the building to the college for $500,000.  What is the capital gain resulting from this transaction?
    • A. 

      $200,000

    • B. 

      $300,000

    • C. 

      $400,000

    • D. 

      $500,000

    • E. 

      $600,000

  • 8. 
    What is the capital gain on a transaction where I sell a piece of property, with a basis of $200,000, for its fair market value of $1,000,000 and then give $500,000 from that sale to a charity?
    • A. 

      $300,000

    • B. 

      $400,000

    • C. 

      $500,000

    • D. 

      $800,000

    • E. 

      $900,000

  • 9. 
    What is the capital gain on a transaction where I sell a piece of property, with a basis of $200,000, to a charity for $500,000 and the charity then immediately sells the property for its fair market value of $1,000,000?
    • A. 

      $300,000

    • B. 

      $400,000

    • C. 

      $500,000

    • D. 

      $800,000

    • E. 

      $900,000

  • 10. 
    I have a piece of property worth $600,000 with a basis of $100,000.  I would like $300,000 of the value to go to charity and I would like to keep $300,000 of the value.  What is the difference in the capital gain if I sell this property for $600,000 and give $300,000 in cash to the charity (“sale then gift”) as compared to selling the property to the charity for $300,000 (“bargain sale”), allowing the charity to then sell the property for $600,000?
    • A. 

      The capital gain is the same

    • B. 

      The capital gain from the “sale then gift” is $500,000, and the capital gain from the “bargain sale” is $200,000

    • C. 

      The capital gain from the “sale then gift” is $500,000, and the capital gain from the “bargain sale” is $250,000

    • D. 

      The capital gain from the “bargain sale” is $500,000, and the capital gain from the “sale then gift” is $250,000

    • E. 

      The capital gain from the “bargain sale” is $500,000, and the capital gain from the “sale then gift” is $200,000

  • 11. 
    I have a piece of property worth $600,000 with a basis of $100,000.  I would like $300,000 of the value to go to charity and I would like to keep $300,000 of the value.  Ignoring non-tax related transaction costs, what is the difference in the net amount received by the charity if I sell this property for $600,000 and give $300,000 in cash to the charity (“sale then gift”) as compared to selling the property to the charity for $300,000 (“bargain sale”), allowing the charity to then sell the property for $600,000?
    • A. 

      The amount retained by the charity is less in the “bargain sale” because the charity must pay capital gains tax upon the sale of the property

    • B. 

      The amount retained by the charity is less in the “sale then gift” because the charity must pay capital gains tax upon the sale of the property

    • C. 

      The amount retained by the charity is less in the “bargain sale” because the donor must pay more capital gains tax

    • D. 

      The amount retained by the charity is less in the “sale then gift” because the donor must pay more capital gains tax

    • E. 

      The amount retained by the charity is the same in both transactions

  • 12. 
    I purchased stock several years ago for $500,000.  Today it is worth $400,000.  I give the shares to a charity for $200,000.  What is my capital loss on the transaction?
    • A. 

      $0

    • B. 

      $50,000

    • C. 

      $100,000

    • D. 

      $200,000

    • E. 

      $300,000

  • 13. 
    A donor owns three lots, each worth $100,000, each with a $10,000 cost basis and each with $50,000 of debt.  What is the capital gain if the donor gives two of these lots to a charity along with the mortgage debt?
    • A. 

      $0

    • B. 

      $20,000

    • C. 

      $80,000

    • D. 

      $90,000

    • E. 

      $100,000

  • 14. 
    A donor owns three lots, each worth $100,000, each with a $10,000 cost basis and each with $50,000 of debt.  The donor works with a lender to shift the debt such that two lots each have $75,000 of debt and the third lot has no debt.  What is the capital gain if the donor gives this one lot with no debt to a charity?
    • A. 

      $0

    • B. 

      $20,000

    • C. 

      $80,000

    • D. 

      $90,000

    • E. 

      $100,000

  • 15. 
    Madolyn would like to donate some land to a public charity that builds parks in downtown areas.  She acquired the land ten years ago for $100,000, and it is now worth $200,000.  She still has an outstanding mortgage balance of $40,000 on the property.  If she transfers the property to the charity subject to the mortgage, how much will she have to pay in capital gains taxes? (Assume the capital gains tax rate is 15%.)
    • A. 

      $3,000

    • B. 

      $6,000

    • C. 

      $15,000

    • D. 

      $30,000

    • E. 

      $40,000

  • 16. 
    Grace would like to donate some land to a public charity which will use it to provide hippotherapy opportunities for people with disabilities.  She acquired the land twenty years ago for $50,000, and it is now worth $200,000.  Grace wants to receive or retain $20,000 from the transaction.  She is debating whether she should sell the property and give the proceeds above $20,000 (“sell and gift”), or simply give the land to the charity and have the charity pay her $20,000 (“bargain sale”).  Grace would get the most tax advantages from
    • A. 

      “Sell and gift” because of the difference in charitable tax deduction

    • B. 

      “Sell and gift” because of the difference in capital gains taxes

    • C. 

      “Bargain sale” because of the difference in charitable tax deduction

    • D. 

      “Bargain sale” because of the difference in capital gains taxes

    • E. 

      Both transactions are equally advantageous.

  • 17. 
    Mary has two lots, each worth $500,000.  She plans to give one lot to charity and sell the other lot for her personal use.  She originally purchased lot A for $100,000 and lot B for $400,000.  Which transaction would give her the largest potential tax benefit?
    • A. 

      The tax consequences are the same regardless of which lot is given to charity.

    • B. 

      Giving lot A and selling lot B maximizes the tax benefits because of differences in both capital gain and the charitable deduction.

    • C. 

      Giving lot A and selling lot B maximizes the tax benefits because of differences in capital gain, even though the though the charitable deduction is the same regardless of which lot is given.

    • D. 

      Giving lot B and selling lot A maximizes the tax benefits because of differences in both capital gain and the charitable deduction.

    • E. 

      Giving lot B and selling lot A maximizes the tax benefits because of differences in capital gain, even though the though the charitable deduction is the same regardless of which lot is given.

  • 18. 
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