Fair market value (FMV) is favored by the IRS and is defined as “the price that property would sell on the open market between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” FMV is what a property owner would expect to receive if they were to sell a newly purchased object at a later date. This is frequently less than what was originally paid, especially if top price had been paid. As a result, fair market value is most frequently a lower value than replacement value.
The IRS has determined that fair market value is a gross value and may include sales commission or buyers premium.
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