FAQ: Fair Market Value (FMV)
What is fair market value (FMV) and how is it determined?
1. Fair market value is the price that property would sell for on the open market. It is the price that would be agreed on by a willing buyer and a willing seller. Usually, items are worth much less than what you originally paid for them.
For example, if you give clothing to a qualified organization, the FMV would be the actual price that typical buyers pay for clothing of the same age, condition, style, and use.
2. Determining the value of donated property is not simple. You must consider all factors connected with the property, such as its desirability, use and scarcity. Formulas can be used, but there is no single formula that applies when determining value, and using formulas seldom results in acceptable determination of FMV.
For example, donated furniture should not be evaluated at a fixed rate (e.g., 15 percent of the cost of new replacement furniture). When the furniture is contributed, it may be out of style or in poor condition, therefore having little or no market value. Or it may be an antique, the value of which could not be determined by using any formula.
3. Factors in determining the value of property include the cost or selling price of the item, sales of comparable properties, replacement cost, and experts' opinions.
The actual cost or selling price is a good indication of the property's value if:
- The purchase or sale took place close to the valuation date in an open market.
- The purchase or sale was at 'arm's length.'
- The buyer and seller did not have to act.
- The market did not change between the date of purchase or sale and the valuation date.