Fair market value ( FMV ) is an estimate of the market value of the property, based on what the knowledgeable, willing, and undeterred buyer may pay to the knowledgeable, willing, and sellers who are not pressured in the market. Estimates of fair market value can be established either on precedent or extrapolation. Fair market value differs from the intrinsic value that individuals can place on the same asset based on their own preferences and circumstances.
Because market transactions are often not observable for assets such as privately owned businesses and most personal and tangible properties, FMV should be estimated. The approximate fair market value is usually subjective due to the state of the place, the time, the existence of a comparable precedent, and the evaluation principle of everyone involved. Opinions on value are always based on a subjective interpretation of the information available at the time of the assessment. This is different from the value charged , where the legal authority (law, tax law, court, etc.) sets an absolute value for a product or service.
The retrieval of a reputable domain, in lieu of property sales, will not be considered a fair market transaction because either party (in this case, the seller) is under undue pressure to enter into the transaction. Other examples of sales that will not meet reasonable market value tests include liquidation sales, deeds in place of foreclosures, distressed sales, and similar types of transactions.
Video Fair market value
National definition
United States
In the United States tax law, the definition of fair market value is found in the decision of the United States Supreme Court in the case of Cartwright :
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- Fair market value is the price at which property will change hands between willing buyers and willing sellers, not under any coercion to buy or sell and both have reasonable knowledge of relevant facts. United States v. Cartwright , 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 US Tax Casing. (CCH) Ã,¶ 12,926 (1973) (quoting from the US Treasury regulations related to Federal property tax, at 26 C.F.R. sec. 20.2031-1 (b)).
The terms fair market value are used throughout the Internal Revenue Code among other federal laws in the US including Bankruptcy, many state laws, and some regulatory bodies. In litigation in many jurisdictions in the United States, fair market value is determined at the hearing. In certain jurisdictions, courts are required to hold fair market hearings, even if the borrower or guarantor of the loan relinquish their right to hearings in the loan documents.
Canada
Fair market value is not explicitly defined in the Income Tax Act. That said, Mr. Cattanach Justice at Henderson Estate, Bank of New York v. M.N.R. , (1973) C.T.C. 636 on page 644 articulates the concept as follows:
The law does not define the phrase "fair market value", but the phrase has been defined in different ways depending largely on the subject people are looking to define it in the mind. I do not think it necessary to try the exact definition of the expression used in the statute other than to say that words should be interpreted in accordance with their common understanding. This general understanding I mean is the highest price that an asset may expect if it is sold by its owner in the normal method applicable to the questionable asset in ordinary business activity in a market that is not subject to undue pressure and composed of buyers and sellers willing to deal with long arm and without coercion to buy or sell. I would add that previous understandings as I have stated in general include what I consider to be an essential element of an open and unlimited market where prices are agreed between buyers and sellers who are willing and informed on the supply and demand bases. This same definition applies to "fair market value" and "market value" and doubt if the word "fair" adds something to the word "market value".
In concert with this decision, the Canadian Income Agency (CRA) lists the following working definitions in its online dictionary:
Fair market value generally means the highest price, expressed in dollars, that the property will bring in an open and unlimited market between willing buyers and willing sellers who are equally knowledgeable, knowledgeable, and wise, and who act independently of one another..
As the definition shows, Canada and America's concept of fair market value is very similar. One obvious difference is that the definition of Canadian work refers to "the highest price" while the American definition only mentions "price." It remains to be debated whether the presence of the word "highest" distinguishes Canada from the American definition.
Maps Fair market value
See also
- Liquidation value
- Market price
- Real estate appraisal
References
Source of the article : Wikipedia
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