In the context of a 1031 exchange, a bargain sale refers to a transaction in which the seller of real estate or personal property sells the asset to a buyer at a price below its fair market value. The seller then donates the difference between the sale price and the fair market value to a charity, which can provide the seller with a tax deduction.
A bargain sale can be used as part of a 1031 exchange, which is a tax-deferred exchange that allows real estate investors to defer paying capital gains taxes on the sale of a property if they reinvest the proceeds in another like-kind property. By using a bargain sale in a 1031 exchange, the seller can reduce their capital gains tax liability while also making a charitable donation.