Assist your brother
I have a question regarding capital gains taxation. I came across a scenario where both the book value and the fair market value (FMV) at the time of sale are provided. In this case, should we automatically use the FMV of the asset, or is there more to consider?
One response
In capital gains taxation, the value you use for calculating gains typically depends on the context of the sale and the applicable tax laws in your jurisdiction.
Book Value: This is the value of the asset according to your Accounting records. It’s often the original purchase price adjusted for depreciation, impairments, or amortization.
Fair Market Value (FMV): This represents the price that an asset would sell for on the open market, considering current market conditions.
In general, when you sell an asset, you will use the FMV if the asset is sold for more than its book value and you’re required to calculate the capital gains for tax purposes. The capital gains tax is typically calculated as the difference between the selling price (or FMV) and the adjusted basis (which is usually the book value).
However, if the asset is sold for less than its FMV and you can prove it was sold at a loss, or if the sale involves a transfer under specific scenarios (like gifts or inheritances), unique rules may apply about how you report the amount.
Thus, if both values are provided, you generally use the FMV if you’re calculating gains at the point of sale. Still, you should also assess specific tax rules that apply to your situation. If your brother is uncertain, it might be worthwhile to consult a tax professional or accountant familiar with local tax laws to ensure compliance and accuracy.