Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
I'm considering selling a property to a family member below current market value. For the purpose of determining potential capital gains/losses, I need to establish a fair market value that will hold up to IRS standards. So, what ARE IRS standards for a case like this? Can I just reasonably comp the property myself? I purchased the property 5 years ago - can I simply use the purchase price plus some reasonable inflation adjustment? I assume that the iron-clad way is to pay for a professional assessment, but I'm trying to avoid that cost and hassle, if possible. Does anyone here have experience with what might be considered a "reasonable" attempt at determining FMV?
Obviously an appraisal from a licensed certified appraiser will work. If you get challenged by the IRS then you will have to prove your numbers. Some state and county taxing authorities provide reliable FMVs. I have also seen trulia, Zillow, and realtor.com numbers pulled and averaged, as well as a broker opinion letter.
As with anything involving the IRS —documentation is key. What would the judge consider as being a fair value and was the approach approach reasonable in obtaining the value.
You should work with your CPA/EA on treatment of this sale.
Generally a sale materially below FMV to a family member or friend would be considered part sale and part gift. i.e. a gift tax return may be required, and no loss should be taken to the extent of the discount.
As @Carl Fischer has said, pay a third party to do an appraisal to establish FMV.
You should work with your CPA/EA on treatment of this sale.
Generally a sale materially below FMV to a family member or friend would be considered part sale and part gift. i.e. a gift tax return may be required, and no loss should be taken to the extent of the discount.
As @Carl Fischer has said, pay a third party to do an appraisal to establish FMV.
Thanks, yes, I'm well aware of potential gift tax implications. My question only pertains to what the IRS might find acceptable for determining FMV. I'm not trying to skirt taxes at all, just trying to minimize transaction fees (such as formal appraisals, if possible).