How is Equity in Real Estate Calculated for an Offer in Compromise? A Columbus Tax Lawyer Explains

The IRS considers the equity in real estate for an offer in compromise, but how is the equity in real estate calculated for an offer in compromise. First, the IRS will determine the fair market value of the real estate. After the fair market value is determined, you are allowed a 20% reduction in the fair market value and then all debt encumbering the real estate that is a priority debt to that of the IRS is allowed to reduce the equity. Thus, a piece of real estate with a $600,000 fair market value and a mortgage of $400,000, would have equity of $80,000 calculated $6000,000 – $120,0000 (20% of $600,000) – $400,000 (mortgage)= $80,000.

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