Inheritance / Estate Planning

Estate appraisals often require a retrospective effective date, meaning the appraiser must determine what the property was worth on a specific past date (such as the date of death) rather than the current date. This requires analyzing comparable sales from around that time period, which adds complexity.

The appraiser must also consider the property's condition as of that date, not its current condition. If renovations were made after the date of death, those improvements are excluded from the valuation. The appraiser may need to rely on photographs, tax records, and interviews with family members to reconstruct the property's condition.

For trust distributions, the appraisal may need to allocate value among multiple properties or parcels within the same estate. The appraiser must clearly identify each property and provide a separate opinion of value for each one.

When someone inherits real property, the tax basis of that property is "stepped up" to its fair market value on the date of the decedent's death. This stepped-up basis determines how much capital gains tax the heir will owe when they eventually sell the property.

If the property is appraised at a higher value on the date of death, the heir's stepped-up basis is higher, which means less capital gains tax when they sell. If the property is appraised too low, the heir may owe significantly more in taxes. Getting this number right is critical, and it requires a qualified appraiser with experience in retrospective valuations.

The IRS can challenge the appraised value if they believe it is not supported by market data. A well-documented appraisal report from a qualified professional is the best defense against an IRS audit.