How To Calculate A Property's Fair Market Value We examine the significance of fair market value in terms of tax legislation and how to determine or obtain a property's fair market value. Within the context of income tax regulations, the idea of fair market value is crucial. If the sale/purchase consideration specified in the agreement is less than the fair market value of the property, both the buyer and the seller will be affected. We will go over what fair market value is in this situation and how it affects buyers and sellers.
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Fair market value is significant for income tax purposes. The income tax regulations impose taxes on any profit made from the sale of property. In most cases, the profit is calculated by subtracting the acquisition and improvement costs from the sale consideration. You may profit from indexation on the expenditures if the property has been owned for longer than two years. You have the choice to substitute the fair market value of the property as of April 1, 2001 for the cost of acquisition for properties you purchase before that date. Therefore, the idea of fair market value is crucial when determining the cost of a transaction for the purpose of calculating capital gains. The stamp duty valuation of the property, which serves as a stand-in for the fair market value, is used as the selling consideration instead of the value specified in the agreement if the price stated in the agreement is less than the valuation used for stamp duty purposes.