Which standard does the IRS require for machinery on an estate return?
Fair market value at the date of death under Treasury Regulation 20.2031-1(b): the willing-buyer, willing-seller price, not book value, depreciated cost, or an auction estimate. Values reported materially below documented market evidence are treated as unsupported, and the IRS challenges depreciation-schedule numbers that diverge from what the equipment actually trades for.
Is equipment inside an operating business valued differently?
Often yes. Installed machinery that will keep operating with the business is commonly appraised at fair market value in continued use, a premise that includes freight, installation, and setup and can exceed piece-by-piece values. Highest and best use governs, so a buyer who would redeploy the assets can set the value rather than the current operation.
Why do liquidation values understate an estate's machinery?
Because orderly liquidation value typically runs 75 to 90 percent of fair market value and forced liquidation value 50 to 70 percent, those standards assume a compulsion to sell that estate tax law excludes. They belong in lender and distress contexts; substituting them on Form 706 understates the gross estate and invites adjustment.
Does special use valuation reduce equipment values?
No. The IRC 2032A election that values qualifying farm or business real property at current use rather than highest and best use is built around land and buildings. Machinery and other personal property remain at standard fair market value, a distinction executors of farm and business estates frequently miss.