Fair Market Values

Fair Market Values are used to determine the value of your assets held within your IRA, which are required by the IRS each year. These show the year-end-value of the assets held in your self-directed IRA account as of December 31st. You can submit your Fair Market Value on the Client Portal. The video series was designed to help you ascertain the proper supporting documentation to value each asset held in your account here at Quest.

Fair Market Values: General FAQs

What is a Fair Market Valuation (FMV)?

A Fair Market Valuation determines the value of each asset in your account, which is reported to the Internal Revenue Service (IRS) each year on IRS Form 5498.

Why does Quest Trust Company require an FMV each year?

This is not a requirement of Quest Trust Company. It is a requirement of the IRS. Internal Revenue Code Section 408(i) requires the trustee or custodian of an IRA to file reports detailing certain information each year “in such manner as the Secretary prescribes” and to furnish this information to individuals “not later than January 31 of the calendar year following the calendar year to which such reports relate.” The Code of Federal Regulations Section 1.408-5 delineates the requirements for the reports, including the amount of contributions, the amount of distributions, the name and address of the trustee, and “such other information as the Commissioner may require.” Distributions are required to be reported on IRS Form 1099-R. Contributions and the Fair Market Value of the account as of December 31 each year are required to be reported on IRS Form 5498.

Do all of my assets need to have an FMV?

Yes, except for cash. Most assets in IRAs consist of stocks and mutual funds, which are easy to value since they are traded on an established market and have a readily determinable market value at the end of each day. Assets in self-directed IRAs typically are not traded on any established market and do not have a readily determinable market value, yet the value as of December 31 still must be reported by the custodian or trustee.

My account is a Roth IRA. Do I still need to have an FMV even though distributions will be tax free?

Yes. There is no exception to the requirements just because qualified distributions may be tax free.

Do the same requirements apply to my Health Savings Account (HSA), Coverdell Education Savings Account (CESA), and my Individual 401(k)?

Yes. The requirements are the same, except that in an Individual 401(k) you must do the reporting since you are the trustee of the plan.

Why does Quest Trust Company insist on additional documentation besides the FMV form?

Quest Trust Company requires this information to verify the valuation in case the IRS audits your account, and so we can accurately reflect the proper valuation on IRS Form 5498.

Why does Quest Trust Company need the FMVs when there no taxes due on the investment gains while the money is in the IRA?

The simple answer is because the IRS requires it. In certain circumstances, the FMV comes into play for tax purposes. For example, when your assets are in a traditional IRA and you reach age 72, you are required to begin taking Required Minimum Distributions (RMDs) based on the value of the account. Additional circumstances include a valuation of an asset which is being distributed in-kind, or converted from a pre-tax account such as a traditional IRA into a Roth IRA, or upon the death of the IRA owner for estate purposes. Also, sometimes accounts are distributed prematurely for various reasons, which may result in taxes and penalties.

What will Quest Trust Company do if I simply refuse to comply with the FMV requirements?

Quest Trust Company has a duty imposed upon us by the IRS to accurately report the Fair Market Value of your account as of December 31 of each year. Eventually, if Quest is unable to determine the Fair Market Value of an asset, it will become administratively infeasible for us to continue acting as the custodian for that asset, and it will be distributed to you at its last known Fair Market Value. This can result in substantial taxes and penalties.

Can I have Quest Trust Company determine the value?

Yes. For a fee, Quest Trust Company can attempt to determine the Fair Market Value of the assets in your IRA. Your IRA will be responsible for any professional or other fees incurred by Quest in determining the Fair Market Value of your account. If there is insufficient information to determine a Fair Market Value for your asset, and you are not able to provide assistance, then it may become administratively infeasible for Quest to continue to act as custodian for that asset.

Does the IRS really care about FMVs when there are no tax implications, or is this just bureaucratic nonsense?

Yes, the IRS cares very much about this issue. In 2015, the IRS added boxes 15a and 15b to Form 5498. Previously, all that was reported was the aggregate total value of all assets in your IRA, including cash or marketable securities. In Box 15a the custodian must report the total value of all assets which are not traded on an established market and do not have a readily determinable value. In Box 15b the custodian must list a code which describes the type of non-traditional assets in the account (e.g. real estate, promissory notes, limited partnerships, options, etc.). Form 1099-R, which is used to report distributions of assets and Roth conversions, has a new code K which indicates that the asset distributed or converted to a Roth IRA does not trade on an established market and does not have a readily determinable value. In this way, they are able to laser focus their audits to self-directed IRAs with non-traditional assets where the Fair Market Value may be inaccurate.

Fair Market Values: Real Estate

Acceptable Supporting Documentation:

  • Full Appraisal
  • Broker’s Opinion
  • Tax Appraisal from the County’s Website

Fair Market Value : Notes

Acceptable Supporting Documentation:

  • Interest Only Notes: Copy of the original note
  • Amortized Notes: Amortization schedule
  • Discounted Notes: letter from qualified note professional or amortization schedule

Fair Market Value : Private Entities

Acceptable Supporting Documentation:

  • Private Placement/An Entity Holding another Asset: What is the underlying investment? (E.g. real estate, notes, or equipment). Supporting documentation must value the underlying asset of the entity. Refer to video over real estate or notes as applicable.
  • Private Stocks: (E.g. small bank stock) Letter from managing member of company letter head attesting to the value of the stock.

Fair Market Value : Miscellaneous

Acceptable Supporting Documentation:

  • Debt Leverage Property:
    • Value of the property – loan balance = FMV
    • Provide documentation for the loan that indicates the loan balance
  • Personal Property: (e.g. mobile home or equipment)
    • Third party valuation from a qualified professional, can be a letter or comparable sales
  • Tax Liens:
    • Value of tax lien and include interest (also include any unpaid amounts)
Fair Market Value Resources

Fair Market Values FAQs – This video lays out all of your tough questions about Fair Market Valuations and how to submit one to ensure you are covered for each tax year.

Fair Market Values Explained – This helpful blog will outline what Fair Market Valuations are and how they effect your Self-Directed IRA!

Have Questions?

E-mail us at FMV@QuestTrust.com or chat live on our website M-F from 8:30am-5:30pm CT!