If you’re considering a 170 exchange, you may be wondering how this kind of exchange can benefit you when compared to a traditional sale. Let’s take a look at the three key benefits of a 170 exchange.
1. You will receive a good chunk of the sales proceeds in cash at closing. In most cases, the buyer will pay cash up front in a 170 exchange, though it is also possible for this cash to be paid out over a period of time depending on the specific terms of the sale. However, the caveat here is that this is likely to only be a minority share of the sales proceeds, as you will likely receive the majority of the proceeds as a charitable deduction from your taxes.
2. You will receive a substantial charitable deduction. The United States Federal Income Tax Code allows taxpayers (both individuals and companies) to deduct their charitable contributions from their taxable income. This applies to 170 exchanges and it can save you a significant amount of money.
For example, let’s say you have a 200,000 square-foot office building that your company is no longer using. The building has an assessed value of $1.2 million, but you’re having difficulty selling. You decide to go for a 170 exchange, selling the building to a large charitable foundation that has outgrown its current office. Though the assessed value is $1.2 million, you sell it to the foundation for $200,000. That mans that you will receive a substantial charitable deduction for the remaining $1 million, as in a 170 exchange the difference between the appraised fair market value and the selling price is always considered a charitable donation.
It is important to keep in mind here that the organization you are selling to must meet certain requirements set out by the government. Specifically, they must have status as a tax-exempt non-profit charitable organization under section 501(c)(3) of the tax code. This is key to ensuring that the different between the appraised fair market value and the selling price can be counted as a charitable motivation.
3. You will enjoy a sense of satisfaction that only comes from giving back in a way that helps others. Beyond just financial gain, a 170 exchange provides a sense of satisfaction that can only come from know that you’ve given back to your community and helped others out in a meaningful way. All in all, the benefits of a 170 exchange extend well beyond your own bottom line, as this kind of transaction is a great way to give back to others.
In conclusion, a 170 exchange offers the best of both worlds to the buyer and seller. The buyer gets access to a property at significantly less than the market price, while the seller enjoys a number of advantages, thanks to his or her charity.