Form 8594 - what does this FMV definition mean exactly? - Searchfunder

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by a searcher from University of Colorado at Boulder
in Los Angeles, CA, USA

3yrs ago

Form 8594 - what does this FMV definition mean exactly?

Fair market value. Fair market value is the gross fair market value unreduced by mortgages, liens, pledges, or other liabilities. However, for determining the seller's gain or loss, generally, the fair market value of any property is treated as being not less than any nonrecourse debt to which the property is subject. Also, a liability that was incurred as a result of the acquisition of the property is disregarded to the extent that such liability was not taken into account in determining the basis in such property.

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reply by a professional 3yrs ago
from Walsh College of Accountancy and Business Administration in Detroit, MI, USA

FMV is the value the parties agree to assign to it and if they do not, the value you assign to it based on a valuation other third party sales, blue book, ect. If your going to have an audit, then you will need audit evidence on the FMV for your opening balance sheet.

When I represent a Buyer, I never want to agree to FMV for purposes of Form 8594 so that I can use the FMV that I think is appropriate or based on a valuation. When I represent a Seller, I always want to agree in the writing to the FMV because it can limit the amount of gain that will be characterized as ordinary income.

If you purchase a group of assets for $1M plus assume $250K of liabilities, your total FMV to allocate to the assets acquired will be $1,250M. If you incur transaction costs that are required to be capitalized under section 263(a), then increase the FMV for the additional amount.

Seller will report the sales price as the same $1,250M but subtract any transaction costs they were required to capitalize to the basis of the assets sold under Section 263(a).

Form 8594 should generally match between Buyer and Seller, except when it comes to liabilities assumed (contingent liabilities can have different tax treatment between buyer and seller, but this is outside the scope of this discussion) and the parties respective transaction costs. Class I - VI are generally the same (unless a distressed sale) and Class VII is where they difference will show up for the items noted above.

email me if you want to set up a call to discuss redacted

reply by a searcher 2yrs ago
from Harvard University in Easton, PA, USA

It's good to remember what the 8594 is FOR - you and the seller both submit it and need to submit it with the SAME numbers on it - this has to do with making sure that there is no "double-claiming" of depreciation so that the government gets it money. The point is that the value assigned to the assets should have some relation to reality and the fact that you and the seller were able to AGREE on a value is intended to safeguard that. (If it was set too high, the seller would object because they would end up owing back taxes. If it is set too low, then you don't get the value of the depreciation shield.)

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