IRS Date of Death Appraisal

The alternate valuation date value is the Fair Market Value of the real estate included in the decedent's gross estate six months after the date of death. Under the Internal Revenue Code, the Personal Representative is allowed to choose whether to use the date of death values or the alternate valuation date values.

Why would the Personal Representative choose the alternate valuation date values instead of the date of death values? Because if one or more of the estate assets have lost a significant amount of value during the six months after death, then the estate tax bill can be reduced. If the alternate valuation date values are used, however, then all the assets must be revalued, not just ones that have gone down in value.

Collins and Associates provides dependable and accurate appraisals in Anaheim, Orange County, Southern California and beyond. Principal David R. Collins is a licensed Certified General Appraiser (G.A.A., S.C.R.E.A.) with over 50 years of experience. We are an appraiser of commercial, industrial, land, income residential, and residential properties, providing the type of reliable values that banks and major lending institutions require for loans.

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Generally, when a person dies, the personal representative is required to value the decedent's assets as of the date of death. You will need to engage a state license appraiser that is knowledgeable, with date of death appraisals for the IRS. However, under federal estate tax law, the personal representative can do so either by the date of death valuation or alternatively on the six-month anniversary after the date of death. This is known as the "alternative valuation date". To use the "Alternative Valuation", the estate must be subject to federal estate tax (in 2020, estates greater than $11,580,000 are subject to federal tax). The use of the alternative date must reduce the value of the gross estate and the amount of federal estate law due. If you have questions regarding this process, you should discuss this with an estate attorney.

A well documented and defensible appraisal is necessary for the IRS. A date of death appraisal is typically a retroactive appraisal. Which is a historical appraisal which is performed when a situation requires an appraisal of the property to determine Fair Market Value when the effective date of the appraisals dated in the past.

The IRS definition of Fair Market Value is the highest price possible on the open market. The best method to determine Fair Market Value is an appraisal report. According to the IRS, it's the highest price that the property would sell for on the open market. This is the price that would be agreed upon between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.

The general rule when calculating the basis of inheriting property is generally favorable to taxpayers. The recipient's basis for inheriting property is stepped up (or stepped down) from the decendent's cost to the asset's Fair Market Value upon the decendent's date of death.

There are four ways to avoid paying capital gains. They are as follows:
1. Sell the property immediately.
2. Convert the property into rental income property.
3. Move into the property as a primary residence.
4. Disclaiming the inheritance.

However, if you retain the property and sell it at a later date, then you will be paying capital gain. The capital gains are the difference in the value from the date of inheriting the property to the date that you sell the property. The gain or loss of the inherited property is reported in the year it is sold. At that time, you should consult with your CPA. Remember, if the property value is likely to take the estate close to or above the inheritance tax threshold, it's recommended that you get three different appraisals to help prove the property's value to HMRC-you could then take an average of the three appraised values.