Website design By BotEap.comThe sum of the unpaid principal balance plus the increased interest may actually overstate the value of the note.

Website design By BotEap.comA little known fact

Website design By BotEap.comAt first glance, the fair market value (FMV) of a note, secured or unsecured, appears to be easily determined. IRS Treasury regulations presume that your value is the principal default, plus any increase in interest and late fees up to the valuation date. To value the grade for less, satisfactory evidence must be presented. Evidence of the lower valuation can be one or more factors such as: interest rate, payment amount, payment frequency, duration, collateral, payment history, or borrower’s credit status, to name only Some.

Website design By BotEap.comA qualified note appraiser may establish a lower value or even a zero value value; the lower fair market value reduces the taxable valuation of the note. This fact is not widely known, even by many CPAs and attorneys, but it is of great importance to the person who pays unnecessary taxes.

Website design By BotEap.comFair market value differs from book value

Website design By BotEap.comThe book value, cost, and balance owed are accurate historical facts. Its accuracy is not in dispute. But, fair market value (the preferred IRS definition) refers to the “market value” of the note, its current salable value, not its historical cost or unpaid balance. These two views result in two values ​​for the same promissory note. Only one value is correct for tax purposes.

Website design By BotEap.comDefinition of fair market value

Website design By BotEap.comThe definition, as defined in IRS Regulation Section 1.170A-1 (c) (2), is “the price at which property would change hands between a willing buyer and seller, without being under any obligation to buy or sell and both have a reasonable knowledge of the relevant facts. “

Website design By BotEap.comTax implications

Website design By BotEap.comA taxable event can be any of many events. Examples include the sale of a promissory note, the transfer of a promissory note from a traditional IRA to a Roth IRA, the gift of a promissory note, or the need to value a promissory note in an estate or trust. In all of these situations, the historical cost, book value, or unpaid balance of the note may differ significantly from its current fair market value. Generally, the fair market value is substantially less than the book value and the tax will be substantially less.

Website design By BotEap.comGeneral conclusions

Website design By• The fair market value of a note is usually less than its unpaid balance plus an interest increase.

Website design By• The IRS calculates many taxes on fair market value, not cost or book value.

Website design By• Many CPAs and attorneys are unaware that promissory notes are not “valued” for what they appear to be; they often overvalue the promissory note and overpay the tax.

Website design By• Valuation is determined based on definition and evidence.

Website design By• An experienced and qualified note appraiser can produce a fair market value report that meets the definition and regulations of the IRS. The fair market value is usually less than its book value.

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