Legal Definitions - bargain purchase

Definition: A bargain purchase is a sale of property for less than its fair market value. This is also known as a bargain sale. When a property is sold for less than its fair market value, the difference between the sale price and the fair market value must be taken into account for tax purposes. If the sale is between family members, it may lead to gift-tax consequences.

• John sold his car to his brother for $5,000, even though the car's fair market value was $8,000. This is a bargain purchase.
• Susan donated her artwork to a charity for $2,000, even though the artwork's fair market value was $5,000. This is also a bargain purchase.

These examples illustrate how a property can be sold for less than its fair market value, resulting in a bargain purchase. In both cases, the sale price was lower than the fair market value, which means that the seller did not receive the full value of the property. This can have tax implications, especially if the sale is between family members or involves a donation to a charity.