Legal Definitions - bargain sale

Definition: A bargain sale is when 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. Another term for bargain sale is bargain purchase.

• John sells his car to his friend for $5,000, even though the fair market value is $8,000. This is a bargain sale.
• Susan sells her house to her daughter for $200,000, even though the fair market value is $300,000. This is a bargain sale and may have gift-tax consequences.

These examples illustrate how a bargain sale occurs when property is sold for less than its fair market value. In both cases, the seller is receiving less money than they could have if they sold the property for its fair market value. This can have tax implications, especially if the sale is between family members.