When determining fair market value (FMV), valuing donations other than cash or equivalents is rarely easy. Typically, FMV is the highest value that can be obtained for a gift in kind between a seller and a buyer who are acting independently from each other in an unrestricted market. For example, a work of art would be valued at the price it would fetch under those conditions.
However, there are times when FMV will be deemed to be less than the value determined by this open market method. FMV is critical to your organization because it determines the eligible amount of a gift, or the amount by which the FMV exceeds the value of any advantage the donor receives for the donation.
To determine the FMV of gifts in kind, it’s suggested that both the donor and the qualified recipient solicit one or more appraisals that would be used to calculate the eligible amount, as well as capital gains or losses to the donor.
However, keep in mind that the situation changes with donations of personal property, intangible property, or real property. In those instances, it’s suggested to contact a professional who can, among other things,
- Follow the Uniform Standards of Professional Appraisal Practice, or standards of the profession,
- Be active in the marketplace for the property, and
- Be independent from the donor, recipient or any other party associated with the donation.