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Fair Market Valuation for Alternative IRA Assets

Fair Market Valuation for Alternative IRA Assets

Ever wonder how to calculate required minimum distributions? Or how the IRS knows what amount to tax you on an in-kind distribution or an in-kind Roth conversion? To track this information of potential taxable income, federal law requires IRA custodians to obtain and report the fair market valuation (FMV) of IRA assets each year.

This reporting is a much simpler task for a brokerage where stocks, bonds, and mutual funds have a closing price each day. That is why you never hear your brokerage asking for an FMV. For self-directed IRAs with alternative investments to the stock market, gathering this information is a little more complicated. IRA custodians do not typically perform the valuations of alternative assets themselves. They require the IRA owner to engage a qualified third party to provide the valuation.

Why Is a FMV Important?

The value of an IRA’s asset is needed to perform a variety of custodial functions:

  • Annual reporting to the IRS on the year-end value of everything held in the IRA
  • In-kind transfers – ensures each IRA custodian has the same value recorded at the time of transfer
  • In-kind distributions and in-kind Roth conversions – since these create taxable events, the IRS needs to know the value of the asset at the time of distribution or conversion
  • Calculating required minimum distributions (RMDs) and beneficiary distributions

How Do I Properly Report the FMV of an Asset?

You will need to complete a Midland FMV Form or update the asset value in your Midland360 Online Portal.

  • As a self‐directed account holder, you are responsible for ensuring this form is complete
  • You nor any disqualified parties may determine the asset value
  • An independent, neutral, and qualified third party must value the asset
  • You must attach supporting documentation

What Can I Use for Supporting Documentation?

Real Estate

You may use a certified appraisal or a valuation from a real estate website (such as Trulia, Zillow, or Realtor.com). You may also use the tax assessor’s “estimated market value” provided by the county in which the real estate is located.

Closely Held LLC or LP

The value of each asset in the LLC is required. If your LLC owns real estate, the same standards as listed above apply. If you have other assets, such as bank or brokerage accounts, submit the statement for that account that correlates with your valuation date. A K‐1 is not acceptable as it represents a historical value.

Private Placement

Contact the manager of the private placement and ask how you can obtain a value for your investment. A periodic statement or letter from the manager on the company letterhead will suffice. The manager cannot be yourself or a disqualified person to your IRA.

Futures, Forex, and Brokerage Accounts

A year-end statement of each account should be provided to the IRA owner by the futures, forex, and brokerage company. The statement for your trading account may also be available online through the company’s website or client portal.

Notes and Mortgages

Typically, the value of a note is equal to the outstanding principal balance. You only need to provide an updated valuation for notes if the current value differs from our records. It is essential that you closely review your account statements to ensure the records appear correct. This includes the proper allocation of principal and interest payments received.

Assets You Consider Worthless or Are in Bankruptcy/Litigation

Provide any documentation you may have at this time. We may contact you regarding additional requirements for updating your account.

If you have any questions regarding completing your fair market valuation, please call our office at (239) 333.1032 or email us at [email protected]. You can access FMV and other account forms here.