Hey friend,
It is important to understand the concept of fair market value from the income tax laws perspective. Both the seller and buyer of a property get impacted if the purchase/sale consideration as mentioned in the agreement is lower than the property’s fair market value.
What is Fair Market Value of a HouseThe fair market value is the price agreed between a seller and a buyer for a particular asset. Every party must be aware of the condition of the asset and must be participating in the transaction with no conditions or force. This is why the fair market value displays the amount for which a property would generally sell in the open market if put up on sale.
Importance of Fair Market ValueThe profit made on the property sale is taxed under the Income Tax laws.
Here, Profit = Sale consideration amount – (Acquisition cost + Improvement cost)
If you hold the property for more than 2 years, then you’ll be allowed to get the benefit of indexation, on the costs. If the property is acquired before 01-04-2001, then you have the option to take the property’s fair market value as of April 1, 2001, instead of the acquisition cost. The “fair market value” concept is significant to find out the acquisition cost, for capital gains purposes.
If the property’s sale price is lower than the property registration valuation, the registration valuation is considered as the fair market value.
The difference between the fair market value and agreement value, if it exceeds 5 percent, is taxed in the hands of the buyer and the seller. To avoid the payment on such a difference, it’s vital to determine the fair market value before the execution of the agreement. Now you know what is fair market value based on.
Read more:
What is fair rental value?
What is ready reckoner rate?
I hope you understood the concept of fair market value.
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Authors Of The Question
What is fair market value?
Ravi Gupta
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3 Year
2021-11-11T17:10:18+00:00 2021-11-11T18:18:11+00:00Comment
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