You may think that your antique leather sofa is priceless, but if you are valuing it to support an insurance claim, the insurance company will likely have other ideas. Most insurers calculate the amount of payouts based on the fair market value of an item, or how much it would fetch if you sold it on the open market. Similarly, if you're planning to donate household items to charity and want to claim a tax deduction, you'll need to value your stuff according to the guidelines set by the Internal Revenue Service.
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What Is Fair Market Value?
In simple terms, fair market value, or FMV, is an estimate of the amount a buyer would pay for your items if you sold them on the open market. There are certain conditions attached to this hypothetical sale. First, the buyer and seller must be unrelated. Second, they must be willing, unpressured and acting in their own best interests. And third, they must know all the relevant facts. You can use any reasonable method to estimate the fair market value of household items as long as you act in good faith. If you're donating old stuff to charity, you can write off the "true" FMV against your taxes as long as you have some sort of evidence to support your valuation.
Classify Your Items
If you're making a claim on your homeowner's insurance, you can't claim the cost of a brand-new item. Fair market value is the price someone would pay for the item in the condition it was in just before the insurance event happened — dents, scratches and all. So, your first step is to list the items you want to include in your value estimate, then make a note of their condition. For example, you might record the condition as poor, fair, good or "as new." For donated household items, you can only deduct the value of good and usable items from your taxes, so strike the rest from your list. Be honest about the condition of your household items as this impacts the prices they might fetch.
Guesstimate a Value
If the household item is nearly new, the FMV will be very close to the price you paid for it. You'll just need to show the original receipt or a bank or credit card statement showing the payment. For older items, it's a guesstimating game. You can get get an idea of what buyers are willing to pay for your household items by searching for similar items on eBay or Craigslist. For donated items, FMV is the price the items would sell for in a thrift store – use Goodwill's online valuation guide to get a rough idea of prices.
For hard-to-value items like artwork and jewelry, websites such as Value My Stuff and Worth Point can provide an opinion on how much your stuff is worth. Upload a photo and write a description of the item's condition, and the site sends back a valuation within a few days. Most sites charge a one-time fee per appraisal, around $10 to $30, or you can take out a monthly subscription that provides unlimited valuations.
Get a Formal Appraisal
While it's up to you to come up with the FMV for your items, both the IRS and your insurer can challenge you if the valuation seems too high. Especially for high-value items like artwork or antiques, it's a good idea to get a professional appraisal — the IRS can insist on this if you've donated items with a value of $500 or more and you're claiming a tax deduction. Accredited appraisers are trained to give fair market valuations and adhere to strict professional and ethical standards. You can find one via the American Society of Appraisers or the Appraisers Association of America.