A bargain sale is a sale to charity at a bargain price. The classic example is a sale of real estate to a charity at a price below fair market value (FMV).
Or supposedly below FMV. Charities need to be cautious when offered real estate at a supposed bargain price, unless the charity wants the real estate for its own purposes. Cautious because the “donor” may be inflating the property’s value or trying to offload a problem. These concerns usually vanish when the charity wants the property to further its mission.
In a true bargain sale (i.e., a sale truly at a bargain price), there are two tax consequences to the donor-seller:  the ability to claim a charitable deduction for the bargain element in the sale; and  the realization of gain if the asset in question has appreciated in value. Here’s an explanation of how the numbers work:
Concept: Assume we know: FMV, the donor’s basis in the asset (B), and the selling price (SP).
The bargain element in the sale, for which the donor-seller may claim a charitable deduction, is FMV – SP.
The gain realized by the donor-seller is given by this formula:
Gain realized = (SP/FMV) x (FMV – B)
Example: Assume FMV = $500,000; B = $300,000; and SP = $250,000. Donor-seller may claim a federal income tax charitable deduction (subject to all the usual limitations and valuation requirements) of $500,000 – $250,000, or $250,000.
Donor-seller realizes a gain equal to:
($250,000/$500,000) x ($500,000 – $300,000)
Which is equal to (1/2) x $200,000, or $100,000.
Bargain sales are relatively uncommon, except for gift annuities. A gift annuity funded with a noncash asset is a bargain sale of the asset and is treated as such, the only “twist” being that the realized gain is generally spread over the donor’s “life expectancy.”