Why Do I Need to Update the Fair Market Value of My Self-Directed IRA?

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Don’t you hate it when a simple process gets overcomplicated? Us too.

Updating your self-directed IRA’s fair market value isn’t hard, especially at IRAR. There are times when your assets’ value needs to be updated— and when that happens, we’re here to help. We make the process easy to understand and simple to complete. Just fill out one form, provide us with documentation supporting your asset’s new value, and then your part is done.

Ready to try for yourself? Let’s get started:

What's an FMV and Why Do I Need it?

A Fair Market Valuation (FMV) is an estimate of the market value of an asset, based on a value where the asset would “change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.“ (United Stated vs Cartwright, 411 U.S. 546, 93S. Ct. 1713, 36 L. Ed 2d 528, 73-1 U.S. Tax Cas. (CCH) 12,926 (1973)).

An updated FMV is required by the IRS anytime there’s a taxable event, which means anytime the movement of your funds and/or assets will be reported to the IRS (like with a distribution or conversion). The IRS also requires an updated value every year as of December 31st.


What are the Costs to Update Fair Market Values?

At IRAR, there’s no fee to update the fair market value of assets. However, there may be non-IRAR costs for valuing your asset, depending on your asset-type. These must be paid by the IRA, out of IRA funds, not from personal funds, because (like with all IRA income and expenses) doing otherwise would be a prohibited transaction.


What Documents Do I Need?

We try to keep the FMV process simple at IRAR, and one way we do that is by keeping the number of documents you need to submit to one form per asset, plus supporting documentation. 

  • IRAR's Fair Market Valuation Form
  • Supporting Documentation
    • If worthless: you must show loss of value (account statement with zero value, court documents confirming bankruptcy)


Documents Required for an IRAR Fair Market Valuation Update


Remember— You need to complete one FMV form per asset. Each individual asset will need its own supporting documentation and form, according to asset type. This does not apply to IRA LLCs, which are one asset, no matter how many assets the LLC owns.


Why do I Need an Independent 3rd Party Valuator?

To get a fair and accurate FMV, you’ll need an independent 3rd party valuator to perform and sign your paperwork. This must be someone totally unconnected to the IRA, so the value can be trusted as fair and accurate. You cannot provide this valuation yourself, nor can any disqualified persons.

A 3rd party valuator may be a:

  • Managing Partner (in the case of an LLC, LP, or Entity)
  • Certified Appraiser
  • Licensed Real Estate Professional
  • Knowledgeable Party (such as a CPA, financial planner, or attorney who is strictly “arm’s length” from you and the investment, see IRS rules on prohibited transactions)
  • Independent Valuation Company


Does Your IRA Hold Real Estate?

If you hold real estate in your self-directed IRA, you need to submit a 3rd party valuation, along with a completed Real Estate FMV form (one form per asset).

You can provide a Comparative Market Analysis (CMA), real estate appraisal, or a property tax bill as supporting documentation. You may also use a property tax bill to update the value, but this value cannot be used for a taxable event, such as a distribution in-kind.

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


Does Your IRA Hold Non-Real Estate Assets?

If you hold any assets in your self-directed IRA that are not real estate (such as private equity or an IRA LLC), you’ll use the general FMV form (one form per asset) and submit that along with appropriate supporting documentation. For clients holding IRA LLCs— note that the IRA LLC is one asset, and we do not need an internal asset breakdown, just a total valuation of the LLC with supporting documentation.

More Details: How to Properly Report the Fair Market Value (FMV) of your Self-Directed IRA


Does Your IRA Hold a Worthless Asset?

Sometimes your investments don’t go as planned— but there’s no reason to leave these worthless assets in your IRA, potentially costing you fees. For these assets, submit a general FMV form (one form for each asset) along with supporting documents showing the loss of value (i.e. an account statement showing zero value, or court documents verifying bankruptcy). Be sure to check the box that applies in section 2 of the FMV form, indicating whether you are closing the account or just removing the asset.

More Details: Removing A Worthless Asset From My Self-Directed IRA



That’s the FMV process— quick and easy. It’s not complicated (though sometimes it might seem that way).

Remember, it’s just 3 quick steps:

  • Complete and sign an FMV form (one for each asset)
  • Compile with the appropriate supporting documentation (depending on asset-type)
  • Submit to IRAR before January 31st (to ensure your account value is property reported to the IRS)

We know that sometimes these types of updates can seem like a time-consuming pain— but at IRAR, we aim to make the process simple. Hopefully you’ve found the information you were looking for, so you can get back to the more exciting parts of self-directing your retirement… like considering your next investment.

We love to help in any way possible. If you have more questions or concerns, feel free to contact one of our representatives.


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