Do you know what the Fair Market Value of art is?

Posted by on May 31, 2014 in Blog Posts | No Comments

Many have an idea of what Fair Market Value (FMV) refers to but it’s not as concrete as it sounds.  The IRS has defined FMV as “… the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts. If you put a restriction on the use of property you donate, the FMV must reflect that restriction.” (IRS Publication 561)

When it comes to the evaluation of art for donation, many people assume that FMV is defined by the auction market (also referred to as the secondary market). This is correct for some artists and their work, but certainly not all.  In clarifying the definition, the Appraisers Foundation in Washington, D.C., adds that FMV should also be determined by the most appropriate market for the property, and, for our purposes, the most common market for an artist’s work.  For contemporary artists who are represented by a gallery, and have little or no history of sales at auction, the most appropriate marketplace for their work is generally retail (i.e., gallery pricing).  Another example would be artists who normally exclusively sell their work out of their studio or via a website—it’s the studio or web prices that would determine their FMV.

The key point to remember is that FMV is reflective of the prices garnered in the marketplace where an artist’s work is most commonly sold.

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