July 27, 2007 7:24 AM EDT
So, I have to determine what FMV is. This seems very arbitrary. It seems like something alot of people would determine after the sale. If I know the actual cost of an item that I paid personally does this factor into the business` "cost" of the item?
In your case, FMV of books, could be determined by looking at the same exact title online to see what it`s being sold at, "on the date that you converted it to business property" - that would be your FMV.
Most books, with obvious exceptions like leather bond classics, depreciate in value instead of appreciate in value. Because of this, your FMV is likely to be less than your original cost. In addition, your sales price is likely to result in less than your FMV. This means that it is very likely that your "business" will result in losses only.
This is the reason why I stated that for a business of your type, you really need to have a sound business plan and profit motive and it better be in writing. The reason it needs to be in writing is because it will be the first thing an IRS officer asks for if they decide to audit you under the "hobby loss rules".
---Gina L. Gwozdz, CPA