Your Assets Have a Tax Value - Be Able to Prove It

Understand when valuation is used

The IRS generally uses fair market value, the price an asset would sell for on the open market, to determine what it's worth for tax purposes. This value can come into play when an asset is bought, sold, donated, transferred or inherited. Common examples include:

  • Buying or selling your home or other real estate

  • Buying or selling personal property

  • Buying or selling business property

  • Establishing values of other business assets like inventory

  • Valuing charitable donations of personal goods and property like automobiles

  • Valuing the barter of services

  • Valuing transfer of business ownership

  • Valuing the assets in an estate of a deceased taxpayer

Tips to prove an asset’s value to the IRS

Fair market value isn't always an exact number. If the IRS questions your reported amount, good documentation can help show how you arrived at it. Consider these tips:

  • Get an appraisal. An independent appraisal can be especially helpful for closely held businesses, commercial real estate, artwork, collectibles and other assets without an easily available market price. A qualified appraisal may also be required for other specified tax purposes.

  • Find comparable sales. Keep records showing what similar properties or assets have recently sold for. Make sure the comparisons are truly similar and document any important differences that could affect value.

  • Take photos. The condition of real estate, artwork, collectibles and other property can have a major impact on value. Photos provide a record of the asset's condition at the time its value was determined.

  • Keep supporting records. Save purchase agreements, financial statements, receipts for improvements, previous appraisals and other documents that could help support an asset's history and value.

  • Document the value when the transaction occurs. Don't wait several years to reconstruct how you arrived at a value. Gather your evidence at the time an asset is sold, donated, gifted or transferred.

  • Plan ahead for major transactions. If you're considering a large gift, business transfer, charitable contribution or sale, get a valuation before completing the transaction. This can help ensure you have the documentation you'll need if the IRS questions the value later.

Quent Capital, LLC