Fair Market Valuation Basics

The beginning of the year is a special time of the year for self-directed IRA owners. FMV season. Each year, they begin gathering information regarding the value of their investments, which are called Fair Markets Values, or “FMVs”. Submitting Fair Market Values to show the worth of the assets they hold in their IRA accounts is one rule Self-Directed IRAs must follow every year.

What is a Fair Market Valuation?

Fair market valuations (FMVs) are values required by the IRS for the worth of assets in your retirement account.  FMVs are required to be reported to the IRS by the Custodians each year, making it very important to submit this information. Custodians will require this end-of-year estimate for each individual asset in the IRA, and it will typically require supporting documentation, as well. 

Why Am I Required to Submit an Fair Market Valuation?

Not only are Fair Market Values important for determining the total value of your IRA for the IRS, they also help you determine other useful information about your IRA, too. For those who have to take distributions, Fair Market Values help determine the required minimum distributions for the year. Fair market values are also often utilized in taxable situations like a Roth Conversion or an asset distribution.

What Do I Need for a Fair Market Valuation at Quest?

Most Fair Market Values will require supporting documentation be submitted along with an internal custodian form that contains your signature. There will be different requirements the custodian will ask for depending on what type of asset is held in the IRA.  As a Quest client, you will be required to submit your Fair Market Valuations for the assets in your account, or have Quest take care of this for you at a small fee. 

Supporting documentation is important. Real estate investments will commonly require an appraisal, broker’s price opinion, or county appraisal value, whereas private entity investment need a balance sheet or letter from the managing member, trustee or operator which states the value of the asset. Some investments, like interest only promissory notes, simply require the unpaid principle balance. 

FMV checklist:

  • Individual valuations for each asset in your IRA – FMVs to be submitted to Quest Trust by January 15th each year.
  • Values assigned as of December 31st of the tax reporting year.
  • An independent, neutral party has completed a third-party valuation.

As a Self-Directed IRA owner, understanding FMVs and why they’re required for all account holders is necessary. Make sure you are compliant with IRS rules and submit your yearly Fair Market Valuations!

Not only will it help you see how your assets performed for the year, but it can also help influence your decisions on future investment deals. If you need help submitting a Fair Market Valuation, give us a call at 855-FUN-IRAS or email our FMV team at FMV@QuestTrust.com!

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