How are gifts valued for tax purposes?

Gifts are valued for federal tax purposes at their fair market value (FMV) on the date the gift is made, meaning the price a willing buyer would pay a willing seller, with neither under pressure to act and both reasonably informed about the asset.

For cash, this is straightforward: the face amount transferred is the value, no appraisal required. Marketable securities are generally valued using the trading price on the date of the gift. Non-cash property, such as real estate, closely held business interests, artwork, or other personal property, requires more analysis and often a qualified appraisal to establish FMV, since there's no simple market quote to point to.

Valuing an interest in a closely held business is particularly involved. The IRS looks to factors such as the company's earning capacity, book value, dividend-paying history, goodwill, and comparable transactions or public company data, and any discounts claimed for minority interest or lack of marketability need to be supported with documented analysis rather than asserted. If the gift involves a retained interest, such as a life estate or term of years placed in trust, the taxable gift is reduced by the value of what the donor keeps, calculated using actuarial tables.

How the value is reported matters too. A gift that is adequately disclosed on Form 709, including the valuation method, financial data, and any discounts applied, generally limits the IRS to a three-year window to challenge the reported value.

A professional gift tax appraisal prepared in accordance with USPAP gives you the documentation needed to support the value you report, including the methodology and market evidence an IRS reviewer or auditor would expect to see. If you're preparing a Form 709 filing, request an appraisal to get started.