arm’s length transaction

Dictionary of Accounting Terms for: arm’s length transaction
arm’s length transaction

one entered into by unrelated parties, each acting in their own best interest. It is assumed that in this type of transaction the prices used are the fair market values of the property or services being transferred in the transaction.

Dictionary of Banking Terms for: arm’s length transaction
arm’s length transaction

transaction carried out by unrelated or unaffiliated parties, as by a willing buyer and a willing seller, each acting in his own self-interest. Pricing based on such transactions is the basis of fair market valuations.

Dictionary of Finance and Investment Terms for: arm’s length transaction
arm’s length transaction

transaction that is conducted as though the parties were unrelated, thus avoiding any semblance of conflict of interest. For example, under current law parents may rent real estate to their children and still claim business deductions such as depreciation as long as the parents charge their children what they would charge if someone who is not a relative were to rent the same property.

Dictionary of Real Estate Terms for: arm’s length transaction
arm’s length transaction

a transaction among parties, each of whom acts in his or her own best interest.

Examples: Transactions between the following parties would, in most cases, NOT be considered arm’s length:

  • a husband and wife
  • a father and son
  • a corporation and one of its subsidiaries
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