Inherited a Home? A Date-of-Death Appraisal Can Save Your Heirs Thousands

When someone inherits a home, the first question is usually about the house itself: keep it, rent it, or sell it. The question that matters most for taxes is quieter: what was the home worth on the day the owner died? That number becomes the heir's new tax starting point, and a well-supported appraisal is the best way to prove it.

What “step-up in basis” means

Your basis is the number the Internal Revenue Service subtracts from your sale price to figure your taxable gain. When you buy a home, your basis is generally what you paid, plus certain improvements.

Inherited property is different. Under the Internal Revenue Code, an heir's basis is generally the fair market value of the property on the date of the owner's death. The original purchase price no longer matters. Decades of appreciation are wiped off the tax ledger. This reset is called a step-up in basis.

A Central Florida example

Say your parents bought their Kissimmee home in 1995 for $90,000. It is worth $420,000 when your mother passes away, and you sell it a year later for $425,000.

• Without a step-up, the taxable gain would be about $335,000.
• With a step-up to the $420,000 date-of-death value, the taxable gain is about $5,000.

The difference is hundreds of thousands of dollars of gain that is never taxed. The catch is that you have to be able to support the $420,000.

Why a professional appraisal, and not an online estimate

The Internal Revenue Service can question the basis you report. If the value you claim is too high, you can owe the extra tax plus interest and accuracy-related penalties. An online estimate or a list of neighborhood sales is not evidence of value on a specific date.

A date-of-death appraisal from a state-certified appraiser:

• Values the property as of the exact date of death, even if that date was months or years ago.
• Accounts for the home's actual condition on that date, which is often very different from a freshly updated listing.
• Documents comparable sales from before that date, so the value reflects the market the owner died in, not today's.
• Follows the national appraisal standards (the Uniform Standards of Professional Appraisal Practice), which is what tax professionals and the Internal Revenue Service expect to see.

It is not too late if the death was years ago

Many heirs do not think about basis until they sell, often years later. A retrospective appraisal solves that. The appraiser researches sales, listings and records from around the date of death and reports the value as of that date. If the property has changed since then, the appraiser describes it as it was.

Married couples and joint ownership

When spouses own a home together and one passes away, generally only the deceased spouse's half receives a step-up. The survivor keeps the original basis in their own half. Florida's Community Property Trust Act, adopted in 2021, gives married couples a planning tool that may allow both halves to step up at the first death. That is a question for your estate planning attorney, and either way, a date-of-death appraisal is how the new basis gets documented.

Alternate valuation date

If an estate files a federal estate tax return, the executor can sometimes elect to value assets six months after the date of death instead. This is a choice made on the return with your tax professional. Steadfast Appraisals can report value as of the date of death, the alternate valuation date, or both.

Who should order one

• Heirs who inherited a home, land or rental property, whether they plan to keep or sell it
• Executors and personal representatives settling an estate
• Trustees distributing property to beneficiaries
• Surviving spouses documenting the new basis in a jointly owned home
• Certified public accountants, enrolled agents and estate planning attorneys who need a credible value for a client's return

A small cost against a large tax

A date-of-death appraisal usually costs a small fraction of the tax it can save. The gain it documents often runs into six figures. Steadfast Appraisals provides independent, state-certified date-of-death and retrospective appraisals throughout Greater Orlando and surrounding areas, in English and Spanish, and we walk you and your tax professional through how the value was reached.

This article is general information, not tax or legal advice. Talk with your tax professional or estate planning attorney about your situation.