Fair market value (FMV) is the price at which an asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
In other words, FMV is the price that a buyer and seller would agree upon if both parties were acting in their own self-interest. FMV is often used in the context of real estate, investments, and tax assessments.
For real estate, FMV is the estimated price that a property would sell for on the open market. This is often determined by a professional appraiser, who will take into account various factors such as location, size, condition, and recent sales of similar properties in the area.
FMV is important in real estate transactions because it can affect the amount of taxes that are paid on the property, as well as the amount of the mortgage that a buyer can qualify for.
In the context of investments, FMV is the value of an asset, such as a stock or bond, based on the current market conditions. This value can fluctuate based on factors such as supply and demand, economic conditions, and company performance.
FMV is important for investors because it can affect the price at which they buy or sell an asset, and can also be used to determine the value of a portfolio for tax or accounting purposes.
FMV is also used in the context of taxes, particularly in the case of charitable donations.
When a person donates an asset, such as a piece of artwork or real estate, to a charitable organization, the tax deduction that they can claim is based on the FMV of the asset at the time of the donation. This is to prevent people from claiming inflated values for their donations in order to receive a larger tax deduction.
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