What Is Fair Market Value (FMV)?
To figure how much you may deduct for property that you contribute, you must first determine its fair market value on the date of the contribution.
Fair market value. Fair market value (FMV) is 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.
If you give used clothing to the Salvation Army, the FMV would be the price that typical buyers actually pay for clothing of this age, condition, style, and use. Usually, such items are worth far less than what you paid for them.
Cost or Selling Price of the Donated Property
The cost of the property to you or the actual selling price received by the qualified organization may
be the best indication of its FMV. However, because conditions in the market change, the cost or selling price of property may have less weight if the property was not bought or sold reasonably close to the date of contribution.
The cost or selling price is a good indication of the property's value if:
The purchase or sale took place close to the valuation date in an open market,
The purchase or sale was at “arm's-length,”
The buyer and seller knew all relevant facts,
The buyer and seller did not have to act, and
The market did not change between the date of purchase or sale and the valuation date.
Sales of Comparable Properties
The sales prices of properties similar to the donated property are often important in determining the FMV. The weight to be given to each sale depends on the following.
The degree of similarity between the property sold and the donated property.
The time of the sale—whether it was close to the valuation date.
The circumstances of the sale—whether it was at arm's-length with a knowledgeable buyer and seller, with neither having to act.
The conditions of the market in which the sale was made—whether unusually inflated or deflated.
(all emphasis mine)