The Biggest Mistake Clients Make When Calculating Fair Market Value
There are a lot of industry-specific terms when dealing with deconstruction and tax deductions. While you won’t be expected to understand everything, we work with our clients to inform and educate them throughout the process. It is crucial that they have a basic understanding to ask informed questions and understand how deconstruction works for them financially. One of the biggest mistakes we see when working with clients is how they think fair market value is calculated.
What Is Fair Market Value?
According to the Internal Revenue Service (IRS), the definition of fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither be under any compulsion and both having reasonable knowledge of relevant facts. This definition was determined in the Federal Tax Case United States v. Cartwright, 411 U.S. 546.
Mistakes Interpreting Fair Market Value
The downfall that we see is most clients assume that fair market value is equal to or close to the price paid for it or the retail value of the item or material. That isn’t the case at all. Fair market value is the price that the taxpayer would have received if he had sold the property in the usual market at the time and place of contribution.
This definition requires the donor to determine the value using actual market data. This can sometimes take some detective work, education, and experience to determine precisely what this value consists of. This approach to assigning value is called the Sales Comparison Approach, and a qualified appraiser would be the best professional to decide on this value. Green Donation Consultants provides this service to our clients, and we include our reasoning within your qualified appraisal.
Are you having trouble determining fair market value? Contact Green Donation Consultants and our personal property appraisal team. Call 800-870-3965 today!