Fair Market Value Flashcards, test questions and answers

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What is Fair Market Value?

Fair market value is an important concept in economics, finance, and taxation. It is the price at which goods or services would be exchanged between a willing buyer and willing seller, with neither party having to act under duress or compulsion. Such a transaction must also be conducted in an open and unrestricted marketplace in order for it to be considered fair market value. Fair market value often serves as the basis for determining the selling price of goods or services, taxes on assets, insurance claims settlements and more.The concept of fair market value has been around since ancient times when it was used to determine appropriate prices for trade between two parties. In modern times, it has become a cornerstone of economics and finance theory where it can be used to evaluate assets such as stock investments or real estate purchases. For example, when someone wants to buy a house they will typically look at comparable sales in their area to try and determine what is an appropriate fair market value for that particular property. The same principle can be applied when evaluating stocks or other investments as well.In addition to being used for pricing items, fair market value also plays a significant role in tax law where taxpayers must accurately report any gains or losses from the sale of assets based on its current fair market value rather than its original cost basis (the amount originally paid). This helps ensure that taxpayers are paying taxes only on actual gains rather than inflating values artificially due financial factors such as depreciation over time or inflationary pressures increasing prices over time. As such, it is important that taxpayers have an accurate assessment of their asset’s current worth before filing their taxes so they can accurately report any potential gains they may have realized from their investments during that year Overall, understanding what constitutes fair market value is important both individuals looking to buy/sell properties but also businesses conducting transactions between one another since misinterpreting this concept could lead to costly mistakes down the line if not properly assessed beforehand.