Fair market value

What it means

Fair market value is the standard used for tax and for estate inventories. It is not what something was insured for, what it cost, or what it means to the family.

For unique property — a house, a collection, a share in a business — it is established by appraisal, and the appraiser's reasoning matters as much as the number.

It assumes an arm's-length sale. Selling a house to a relative below market does not change the fair market value for tax purposes.

Why it matters

It is the number a tax authority will test, and a family that used a sentimental or convenient figure has to defend it years later.

It also decides what is fair between beneficiaries when one takes an item and another takes cash.

When you are likely to meet it

• When valuing an estate.
• When beneficiaries divide property between themselves.
• When an inherited asset is sold.

Related terms

• Alternate valuation dateAn election to value an estate six months after death instead of on the day of it.
• AppraisalA professional opinion of what something was worth on a particular date — usually the date of death.
• Assessed valueWhat a taxing authority says a property is worth, which is rarely what it would sell for.
• Bill of saleA written record that ownership of something passed from one person to another, with the date, the parties and the price.
• Branded titleA permanent mark on a title recording that the vehicle was once written off or badly damaged.
• Cash surrender valueWhat a permanent life insurance policy is worth if it is cashed in during the insured person's lifetime.
• Date-of-death valueWhat something was worth on the day the person died. It is the number the estate, and often the tax, is measured by.
• DissociationA partner ceasing to be a partner — by death, by incapacity, or by leaving — without the partnership ending.
• Estate saleA sale of the contents of a house, usually run by a company on commission. It is one of several ways to clear a home, and rarely the only one worth considering.
• Estate taxA tax on the value of what somebody left, paid by the estate before anything is distributed.
• Firearms after a deathGuns in an estate are property with their own federal and state rules, and moving one to the wrong person can be a criminal offense rather than a paperwork error.
• Gross estateEverything counted before anything is subtracted — which is not the same as what the family ends up with.
• Inventory and appraisementA list of everything in the estate with a value against each item, filed with the court or given to the beneficiaries.
• Look-back periodThe stretch of time before a Medicaid application during which gifts and transfers are examined, and can delay eligibility.
• Operating agreementThe document setting out how a limited liability company is run — including what happens to a member's interest when they die.
• Partition actionA court case brought by one co-owner to divide property, or force its sale, when the owners cannot agree.
• Salvage titleA title branded to record that a vehicle was declared a total loss. The brand stays with the vehicle permanently.
• Share transfer restrictionA limit on who may hold shares in a private company — enforceable only if it is written on the certificate.
• Step-up in basisThe tax rule that resets an inherited asset's value to what it was worth on the date of death.
• Tangible personal propertyThings you can touch and move — furniture, jewellery, tools, a car, the contents of a house. Not land, and not accounts or shares.
• Vehicle transfer taxes and feesWhat a state charges to put a title into a new name — a title fee, a transfer fee, and sometimes a tax on the value of the vehicle.
• Carryover basisWhen property is given away during life, the recipient generally takes over the giver's own basis in it, rather than a fresh valuation.

Sahvelo guidance that uses this

• Personal property
• Taxes after a death