What is Fair Market Value?
Fair market value (FMV) is an important concept used mainly in taxation and financial reporting. It refers to the value of an asset or service based on the price that would be agreed upon between a willing buyer and seller, both of whom have knowledge of all of the relevant facts. This concept is used in a variety of contexts, including income tax, estate tax, gift tax, and property transactions.
What Determines Fair Market Value?
FMV is based on market forces, such as supply and demand, as well as economic conditions. It is not necessarily equal to the highest price that a willing buyer would pay for an asset or service, nor the lowest price that a willing seller would accept. Instead, it is the price that would be agreed upon between a buyer and seller who are knowledgeable and acting in their own best interests.
Examples of Fair Market Value
The following are some examples of fair market value:
- The sale price of a used car between a willing buyer and seller
- The appraised value of a home
- The value of a business based on the price that would be paid by a willing buyer
- The value of a donated item of clothing, furniture, or other item
Conclusion
Fair market value is an important concept that is used for a variety of purposes, including taxation and financial reporting. It is based on market forces and economic conditions, and is not necessarily equal to the highest or lowest price that a willing buyer or seller would accept. Understanding FMV is important for anyone involved in buying, selling, or transferring assets. For more information, please see Investopedia and the IRS.