Date of Death Appraisal for Estate Tax

What Is a Date-of-Death Appraisal?

A date-of-death appraisal establishes the fair market value of real property as of the exact date a property owner passed away. The IRS uses this value to calculate estate taxes (if the estate exceeds the federal exemption threshold) and to set the "stepped-up" cost basis for beneficiaries who inherit the property.

This is a form of retrospective appraisal because the effective date is in the past. The appraiser must determine what the property was worth on that specific day, using market data and conditions that existed at that time.

Why the IRS Requires It

Federal estate tax law requires executors to report the value of all assets in the decedent's estate, including real property. If the estate's total value exceeds the federal exemption (currently $13.61 million per individual for 2024), estate tax is owed on the amount above that threshold. Even for estates below the exemption, the appraisal is important for establishing the stepped-up basis.

The value goes on IRS Form 706 (United States Estate Tax Return), which must be filed within nine months of the date of death (with a possible six-month extension). Having a credible appraisal attached to this return is the best way to support the reported value if the IRS ever questions it.

Stepped-Up Basis Explained

One of the most significant tax benefits for heirs is the stepped-up cost basis. When you inherit property, your cost basis for capital gains purposes "steps up" to the fair market value on the date of death, rather than whatever the deceased originally paid.

For example, if your parent bought a home in 1985 for $80,000 and it was worth $450,000 on the date of death, your new cost basis is $450,000. If you later sell the property for $470,000, you only owe capital gains tax on the $20,000 gain, not the $390,000 gain that would apply using the original purchase price.

Without a professional appraisal to document the date-of-death value, you may have difficulty proving your stepped-up basis if the IRS or a state tax authority challenges it years later.

The Alternate Valuation Date

Executors have the option to use an "alternate valuation date" exactly six months after the date of death, instead of the date of death itself. This option is only available if:

• The election reduces the total estate tax liability.
• The election reduces the total value of the gross estate.
• The estate is required to file Form 706.

If the real estate market declined during those six months, using the alternate date could save the estate a meaningful amount in taxes. However, the alternate valuation also becomes the stepped-up basis for heirs, which means a lower basis and potentially more capital gains tax when the property is eventually sold. Executors should work with a tax professional to determine which date produces the better overall outcome.

If the executor elects the alternate date, a separate appraisal with an effective date six months after death is needed.

How Appraisers Determine the Value

The appraiser follows the same general methodology as a current-date assignment but constrains the analysis to market data from the period around the date of death:

• Comparable sales. The appraiser searches for properties that sold near the date of death, ideally within a few months before and after. Only data that was available or knowable as of the effective date should influence the analysis.
• Property condition. The appraisal reflects the home's condition on the date of death, not its current state. If renovations or damage occurred after death, those are excluded.
• Market conditions. The appraiser considers interest rates, inventory levels, and local market trends as they existed at the time.

If the death occurred recently (within the past few months), the process is straightforward because current comparable sales are still relevant. For deaths that occurred years ago, the assignment becomes a more complex historical research project.

Common Mistakes Executors Make

Handling an estate is stressful, and property valuation mistakes are surprisingly common:

• Using a Zestimate or tax assessment instead of an appraisal. The IRS expects a professional opinion of value. Automated estimates and county assessments are not reliable substitutes and will not hold up to scrutiny.
• Waiting too long to order the appraisal. The further you get from the date of death, the harder it becomes for the appraiser to find relevant comps and assess property condition accurately. Order the appraisal as soon as practical.
• Making improvements before the appraisal. If you renovate the kitchen or replace the roof before the appraiser visits, it complicates their job. The appraisal must reflect the property as it was on the date of death, not after upgrades.
• Forgetting about the alternate valuation date. If the market dropped after the death, the six-month alternate date could save the estate thousands in taxes. Discuss this option with the estate's tax advisor early.
• Not getting appraisals for all properties. If the decedent owned multiple properties (a primary home, a rental, a vacation cabin), each one needs its own appraisal.

Hiring the Right Appraiser

For date-of-death work, look for an appraiser who has specific experience with retrospective appraisals and understands IRS requirements for estate valuations. The appraiser should be comfortable explaining their methodology in writing and, if necessary, defending it to the IRS.

You can search for licensed appraisers on AppraiserPoint and contact them directly to confirm they handle date-of-death assignments.