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market approach, (2) income approach, and (3) the asset-based
approach. The question of which of these approaches to apply in
a given case is a question of law. Powers v. Commissioner, 312
U.S. 259, 260 (1941).
1. Market Approach
The market approach requires a comparison of the subject
property with similar property sold in an arm’s-length
transaction in the same timeframe. The market approach values
the subject property by taking into account the sale prices of
the comparable property and the differences between the
comparable property and the subject property. Estate of Spruill
v. Commissioner, 88 T.C. 1197, 1229 n.24 (1987); Wolfsen Land &
Cattle Co. v. Commissioner, 72 T.C. 1, 19-20 (1979). The market
approach measures value properly only when the comparable
property has qualities substantially similar to those of the
subject property. Wolfsen Land & Cattle Co. v. Commissioner,
supra at 19-20.
2. Income Approach
The income approach relates to capitalization of income and
discounted cashflow. This approach values property by computing
the present value of the estimated future cashflow as to that
property. The estimated cashflow is ascertained by taking the
sum of the present value of the available cashflow and the
present value of the residual value.
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