How Do You Calculate Fair Market Value?
According to the Internal Revenue Service, fair market value can be calculated based on the current selling price of the property, the price of comparable goods, the cost to replace the item or the opinion of experts on an items value. No specific formula can universally calculate FMV.
Some common errors in calculating FMV, as listed by the IRS, include failing to account for unusual market conditions, poorly selecting comparable goods, and the inability to account for future events relating to the price of the good or incorrectly using the past to predict the future. According to BusinessDictionary and the IRS, fair market value is often used in determining tax information for inheritance and donations.