|
 |
VALUE REVIEW™
Published by Semler Appraisals & Estate Liquidations
A Professional Service for the Valuation of Personal Property
Fall, 2002 Vol. 4, No. 3
Hypothetically Speaking....
The
U.S. federal government originally defined Fair Market Value (FMV)
for use in determining tax liabilities, including gift tax, estate
tax, and deductions for non-cash charitable contributions.
 This
FMV is the only value used by the Internal Revenue Service when
pertaining to gift tax, estate tax, income tax (including charitable
donation deductions), casualty loss, and bankruptcy.
FMV is a hypothetical concept implying that neither the buyer
nor seller has an advantage, that an ongoing marketplace exists
in which buyers and sellers interact with frequency, and in which
research can be conducted to uncover past sales of comparable
properties in order to establish value.
FMV is hypothetical because it assumes the enjoyment of retained
benefits will continue. The owner could sell and enjoy the
proceeds, or could keep the property and enjoy its use.
Ultimately the FMV reported to the IRS will depend on whether
the property is sold or kept. Let’s look at some examples:
• Property sold, not kept—The contents of an estate
that are sold during the closing of an estate are taxed at the
amount netted by the estate. The IRS considers the sale
price of property as good and sufficient proof of FMV. The
“hypothetical-ness” is removed. The netted amount
is the FMV that is reported to the IRS.
• Property kept, not sold—The contents kept by an
heir of the estate are taxed on what a buyer would pay, not on
the amount it might have netted if (hypothetically) sold.
This concept is hypothetical in the sense that the unsold estate
property is valued as though its rights of ownership to the estate
continues.
FMV is a measure of the amount that would be obtained through
a buyer in a transaction, not the amount that would be retained
by the seller. Here’s another example. There
is a widget in Uncle Fred’s estate. No one in the
family wants it and it goes to auction where it is sold with a
hammer price of $20,000.00. When the insurance, shipping,
photography fees, and selling commission are subtracted out, the
amount retained by the estate (selling price less sales commissions
and other expenses) is $15,000.00. Since the widget sold,
the amount that gets reported to the IRS is $15,000.00.
Same widget, but in this scenario cousin Freda, one of the heirs,
inherits the widget and wants to keep it. A similar widget
sold recently at auction for a hammer price of $20,000.00 (note
that the hammer price is the same as that used above). A
buyer’s premium of 10% was also collected from the buyer,
for a total of $22,000.00. The FMV reported is $22,000.00.
This interpretation comes from Internal Revenue Regulation Section
1.170A-1(c)(2) which defines FMV as “The price at which
property would change hands between an willing buyer and a willing
seller…..” The widget would not change hands
at the auction unless the buyer paid the buyer’s premium
in addition to the hammer price.
In summary, FMV represents the amount of money that would be obtained
from a buyer rather than retained by a seller in hypothetical
situations when the property is not sold. The concept of
Fair Market Value applies to income tax and estate and gift tax
cases.
And Speaking of Art
If you’ve ever been confused by terminology in the world
of art, keep this list of definitions handy.
Authorship by or ascribed to … — This is
the highest level of authenticity indicated. A work by the
artist.
Attributed to … — Probably a work by the
artist, but less certainty as to authorship is expressed.
Studio of … — A work by an unknown hand in
the studio of the artist that may or may not have been executed
under the artist’s direction.
Circle of … — A work by an as yet unidentified
but distinct hand closely associated with the named artist, but
not necessarily his/her pupil.
Style of … or follower of … — A work
by an artist in the named artist’s style, contemporary or
nearly contemporary, but not necessarily his/her pupil.
Manner of … — A work in the style of the artist
and of a later date.
After … — A copy of a known work of the artist.
Signed, dated, inscribed — The signature, date, or
inscription are by the hand of the artist.
Bears a signature, bears a date, bears an inscription —
A signature, date, or inscription has been added by another’s
hand.
Estate Settler®
“The Executor’s Assistant”
Semler Appraisals & Estate Liquidations is the newest
member of the Estate Settler® network. Look for more
information in the next issue of ValueReview™, or go to
www.EstateSettler.com.
Our Services
Appraisals for probate/estate tax; equitable distribution among
heirs; insurance coverage and claims; non-cash charitable contribution;
distribution in marital dissolution; bankruptcy.
Estate Liquidations by auction or tag sale.
Litigation Support
Lorrie Semler is a Certified Member of the International
Society of Appraisers, specializing in Antiques & Residential
Contents.
Thank YOU!
Your referrals are always welcome. Please let us know how
we may better serve you.
E-Mail Address Change
Make a note of our new email addresses:
info@ValueReview.com
appraiser@ValueReview.com
semler@ValueReview.com
Happy Holidays to You and Yours
    
Back |
