In the context of tax law, what does FMV stand for?

Fair Market Value (FMV) is a key concept in tax law that refers to the price that property would sell for on the open market between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts. This definition reflects the assumption of an arm's-length transaction, where neither party is under any compulsion to buy or sell, and both are motivated to undertake the transaction.

In tax situations, FMV is important for various reasons, such as determining the basis for calculating gains or losses on the sale of assets, determining charitable contribution deductions, and establishing the value of inherited property for estate tax purposes.

Understanding FMV is crucial for tax compliance and planning because it affects how income and deductions are reported. For instance, when a taxpayer donates property to a charity, they can only deduct the FMV of the property at the time of the donation, which might be significantly different from the purchase price or another valuation metric.

This is why Fair Market Value is the recognized and significant term in tax law context, guiding both taxpayers and tax professionals in making informed decisions regarding asset valuations.