Update the Fair Market Value (FMV) of Your Real Estate IRA

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Are you transferring, selling, or distributing your self-directed assets? Are you taking your yearly required minimum distribution? Is it December and your IRA custodian is asking for an updated “FMV”?

If so— you’ll need to update the fair market value of your IRA’s assets. It’s a simple process, especially at IRAR, but it must be done annually (and whenever you do a “taxable event”, like a sale or distribution).

What Exactly is a Fair Market Valuation (FMV)?

A fair market valuation is an estimate of the market value of your asset, based on what a willing and knowledgeable buyer would pay a willing and knowledgeable seller.

Why Do I Need To Update My Asset's Value?

If you're trying to remove or distribute your real estate, that's considered a taxable event— and the IRS wants to make sure you're paying the correct amount of taxes, which is why they require updated valuation by a qualified third party.

Not only do we need to establish the value of your asset for any taxable event, but the IRS uses these values (we report them once a year, as of December 31st) to calculate your required minimum distribution (RMD) amount and tax obligation for the year. Even if you aren’t yet of RMD age, IRA Resources is still required to report your account balance by May of the next year. That means, if you haven't updated your property's value, you could end up paying taxes on an amount that isn't accurate— and that's a headache to fix with the IRS.

Relevant: How to Take a Distribution or RMD from your Real Estate IRA

What Paperwork Do I Need To Submit?

To update the value of your real estate assets at IRA Resources, you'll need to fill out a Fair Market Valuation (FMV) form for each individual asset and submit corresponding supporting documentation in order to complete this process.

Except for when using a property tax bill as supporting documentation to update value, all valuations must be performed by a qualified, independent third party (such as a certified appraiser, a licensed real estate professional, or a knowledgeable party like a CPA or attorney). Please remember to have the valuator sign and date the completed FMV form before submitting.

Acceptable Supporting Documentation for FMV

  • A Real Estate Appraisal
    • For certain actions, an appraisal is required:
      • Taking an in-kind distribution
      • Converting an asset to a Roth IRA
      • Recharacterizing an asset
      • Calculating or taking a required minimum distribution
  • A Property Tax Bill
  • A Comparative Market Analysis (CMA)
  • An Opinion Letter on Company Letterhead

 Relevant: Everything you need to know about FMVs

 

What if My Asset is Worthless?

If your asset is worthless, you will not need a third-party valuation to support the status and value. We accept the following supporting documentation to remove the asset from your account:

  • Deed in Lieu of Foreclosure or a copy of the recorded Trustee's Deed (for a defaulted mortgage)
  • County's recorded Tax Deed (for defaulted property taxes)

If you have any other questions about removing an asset with no value, please reach out and one of our representatives will be happy to help you.

Important Tips:

  • When paying for an appraisal or other valuation, the costs should be paid by the IRA
  • You can't value your own assets— all valuations must be completed by a qualified, independent third party.
  • You must submit appropriate supporting documentation— and make sure the documentation is acceptable for your transaction. Not all supporting documents are sufficient for all transactions.
  • It is your responsibility to update the value of the assets in your IRA. If an incorrect value is reported to the IRS and it impacts your taxes, we may be able to make a correction if the error is caught soon enough— but in the end, it's your responsibility to appeal to the IRS.

Conclusion

Updating the value of the real estate in your IRA seems a lot more complicated than it actually is. Though the process is similar to how you'd establish the value outside your IRA, there are a few rules you'll need to keep in mind.

Ready to update your property's fair market valuation? You should have everything you need! Happy Investing!

 

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