Why Do I Need a Date of Death Appraisal?

As experienced residential real estate appraisers, we often assist people after the death of a loved one to provide a Date of Death Appraisal. Some clients are referred to us by their estate attorneys or tax advisors, and some find us after being mandated by court to obtain an appraisal for estate purposes. Whether you’ve inherited property or are assisting someone who has, it’s important to understand the many benefits and uses of this type of appraisal. This article will break down why getting that date-of-death valuation - especially when dealing with the IRS - is crucial if you've got some inherited real estate in your hands.

1.      Getting It Right for Estate Taxes:

When someone close passes away and leaves behind their home, it falls upon us to determine its worth at the time they died. The IRS isn’t interested in guesswork here – they demand an accurate assessment as part of settling any estate taxes due. A proper IRS date-of-death appraisal ensures there’s no risk of misjudging the property’s worth — avoiding unnecessary stress over potential tax liabilities later down the line.

2.      Understanding Stepped-Up Basis:

Inheritance typically comes with something known as "stepped-up basis." Here's how it works: instead of inheriting Grandma’s original purchase price from back in 1930s, her place gets valued at current market rates when she died—this becomes your new base level or “basis.” If you sell that property, any capital gains tax owed would be figured based on how much more than this recent basis amount you managed to sell—not what Grandma originally paid all those years ago! To do this right—and possibly save yourself tons in future capital gains taxes—a legit date-of-death appraisal completed by a Certified Residential Appraiser is key—it helps nail down that stepped-up basis accurately.

3.      Fair Split Among Heirs:

When it comes to divvying up a property among multiple inheritors, an estate date of death appraisal is your best bet for ensuring the value of the place gets judged accurately, leading to a fair slice for everyone involved. As real estate appraisers pledge to be non-biased, a professional appraisal will be recognized if the will is challenged in court and can help clear any disagreements that might pop up during the distribution phase.

4.      Value of Estate For Probate Proceedings:

Probate is the legal process that occurs after a person’s death. It involves validating the will, settling any debts, and distributing the estate assets to the beneficiaries. An accurate date-of-death value of the estate is an essential part of this legal process.

5.      Date of Death Is Important:

During the process of completing an estate appraisal, we will have to use the date of death, which is classified as a retrospective date. Unlike conventional appraisals that calculate current market values, this technique takes us backward in time to pinpoint an accurate valuation on the date of death. This alternate valuation date is why estate appraisals are vital for tax-related matters - particularly when filing estate taxes and setting up stepped-up bases for properties inherited. It does not matter when you order the appraisal, as the date of death is a fixed point in time. No matter how long it takes to settle the estate, the appraisal will always be valid for this purpose.

6.      Money Moves Made Smarter: 

Having hard numbers from a date-of-death evaluation empowers heirs to make financially sound decisions regarding their newfound real-estate riches. Should you sell the inherited property? Move in and make it your primary residence? Rent it to tenants or vacationers as an income-producing property? Whatever path chosen, knowing a property’s true worth plays a vital role sketching future financial blueprints.

7.      Resolving Disputes with the IRS:

In some cases, the IRS may challenge the reported value of the inherited property. Having a well-documented and expertly prepared estate date of death appraisal can serve as valuable evidence to resolve any discrepancies and avoid potential penalties or audits.

8.      Avoiding Overpaying on Taxes:

Overvaluing an inherited property can lead to higher property taxes for the beneficiaries; But undervaluing the property can result in increased capital gains tax after its sale. A precise estate date of death appraisal helps strike the right balance and ensures that taxes are appropriately assessed.

9.      A Professional Appraiser is Essential:

When seeking a date of death appraisal for inherited property, it is vital to engage the services of a qualified and experienced residential real estate appraiser. An expert appraiser knows how different factors impact the value of a property and will provide an honest and non-biased valuation.

10.  Appraisers with SRA Designation Are Even Better

For estates that may be contested amongst heirs or will likely face scrutiny from the IRS, you will want to find an appraiser with an SRA designation from The Appraisal Institute. These SRA Appraisers are automatically considered qualified experts by the IRS and need no further credential validation. These appraisers usually have an extra 3-5 years of appraisal education and undergo a rigorous peer-review process to earn their designation. Only 1% of all appraisers in the United States have obtained this designation.

You may have wondered "why do I need an appraisal for inherited property?" Obtaining a date of death real estate appraisal is not only crucial for IRS compliance but also for making informed financial decisions and ensuring a fair distribution among heirs. If you're wondering when a date of death appraisal should be done, we recommend doing so as soon as possible, as it can truly guide many decisions while settling an estate. An accurate appraisal can save you from potential tax burdens and legal disputes while providing you with the knowledge needed to manage the inherited property wisely. For peace of mind and financial security, it is wise to enlist the services of a professional appraiser when dealing with estate matters.

If you need a Date of Death appraisal for a property that you’ve inherited, please order now.