Date of Death Valuation (Estate Tax Appraisal) for Real Property
Determining Fair Market Value with an Estate Tax Appraisal
When someone dies, it is necessary to value all of the decedent’s assets, including real property such as real estate. As part of the valuation of assets at death by an estate tax appraiser, a date of death valuation determines the Fair Market Value of real estate as of the date that the owner died. This property valuation is used to determine if a federal estate tax return is due to the IRS, and the amount of estate tax, if one is owed. This is part of what is sometimes referred to as the death tax. The valuation of the property is also used to determine the new income tax basis for the decedent’s assets when they are passed on to the person’s heirs.
If a farm or ranch was owned by the person who has died, the farm equipment, livestock, and growing or harvested crops must be separately valued. These situations are usually stressful and complex, and must be handled carefully and with practices that will hold up in court, i.e., are defensible.
What is Fair Market Value of Real Property of an Estate?
The IRS has published an excellent page answering Frequently Asked Questions about Estate Taxes, including the definition of Fair Market Value.
Fair Market Value is defined as: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” Regulation §20.2031-1.
(Please consult a tax attorney for complete information on the legal and tax implications of the valuation of assets at death. Although an alternative date may be used for a date of death valuation of assets in some circumstances, the selection and rules governing this alternate date are complicated and beyond the scope of this website. You should order the appraisal from an experienced Estate Tax Appraiser (Appraisal IQ) after you have consulted with your attorney.)
A date of death valuation requires an historical appraisal, also known as a retrospective appraisal.
This type of appraisal determines the Fair Market Value of property as of a specific date in the past. Attorneys, accountants and executors and others rely on the real estate appraisal services of Appraisal IQ for to help in the valuation of assets at death because of the familiarity and experience we have in performing residential real estate appraisals of this sensitive type.
Who can act as an Estate Tax Appraiser?
The IRS has defined the appraisal standards that must be met along with verifiable minimum education, designation and experience requirements for an appraiser performing appraisals for estate tax purposes. The estate tax appraiser must have experience with IRS Real Property Valuation Guidelines. Treasury Regulation Section 20.2031-1(b) requires the residential appraiser to follow the valuation guidelines when preparing a real estate appraisal for tax purposes or retrospective date of death valuations. In addition, the real estate appraiser should be designated and qualified under IRS tax regulations Section 1.170A-17(a).
When you hire Appraisal IQ as your estate tax appraiser, you can be confident that the appraisal professional that handles your case is qualified and licensed per all applicable regulations and guidelines.
In addition our opinion of value (appraisal) prepared by a certified real estate appraiser for valuing assets at death will be well supported by a detailed report as to how the appraiser arrived at his or her conclusions of the fair market value of the property. Your report will demonstrate to the user that the appraisal is well founded, substantiated, and meets with Treasury Regulations and state agency requirements. It is also wise to avoid submitting an appraisal that is more than two years old or an appraisal that does not meet other specific IRS guidelines for estate tax valuation of property.
Be Prepared for the Appraisal
In order to facilitate the appraisal of property as of a date in the past, you may need to provide records such as deeds, inspection records or photographs that can substantiate the condition of the property at the time the records were created. The appraiser will use this information, as well as historical market data (such as sales in the Multiple Listing Service (MLS)) and construction data (cost to build) to determine the market value of the real estate as of the date required, i.e., as of the Date of Death.