Why Do I Need an Appraisal After the Death of a Loved One?

In the process of settling an estate for a deceased person (the decedent), a final income tax return will need to be filed on their behalf. If the decedent’s estate includes real property, a Date of Death Appraisal is commonly obtained to substantiate (provide evidence of and support for) the value of the real property noted on the return.

What is a Date of Death Appraisal?

 

Often referred to as a “D.O.D Appraisal”, “Date of Death Valuation”, “Probate Appraisal”, or an “Estate Appraisal”, a Date of Death Appraisal is a fair market value opinion for the real estate of the decedent as of the date of their passing.

Typically, because the decedent’s real estate technically changes ownership on the date of the decedent’s death, a Date of Death Appraisal is also commonly referred to as a “Retrospective Appraisal” or “Historical Appraisal” because the date on which the real estate’s fair market value will pertain to is a date in the past (the date of death) rather than the date on which the title to the real estate is transferred or the date the appraiser observes the property. 

For example, if a homeowner passes away on March 20th, 2023, and the appraiser observes the property on July 14th, 2023, the value of the real estate would be based on the property characteristics and market conditions as of March 20th, 2023. 

Alternate Valuation Date Appraisal:

A potentially relevant valuation date to be aware of during the settlement of an estate is the “Alternate Valuation Date”. The use of an “Alternate Valuation Date” (AVD) could be particularly advantageous if the local real estate values have declined within 6 months after the date of death as the fair market value of the real estate could be lower and, as a result, the tax savings could be significant. In this circumstance, two separate appraisals must be prepared to demonstrate the real estate’s fair market value as of the date of death and the alternate valuation date, respectively.

Remember that while the alternative valuation date can be appealing during uncertain market conditions or economic downturns, it does come with certain disadvantages that must be considered. For instance, if a reduced value of the real estate is utilized for current tax purposes, then future gains (and by extension future taxes owed) on the sale of that real estate may be more significant.

To determine which date(s) you will need, we recommend consulting with an attorney, Certified Public Accountant (CPA), or another financial professional specific to your circumstances.

Who Can Provide a Date of Death Appraisal?

The IRS has established well-defined criteria that appraisals must meet when conducted for property tax purposes. There are also established requirements for appraisers preparing an appraisal report for property tax purposes, including for the appraiser’s education and experience, to ensure the quality and credibility of the appraisal reports.

Note: If you want a Date of Date Appraisal that is compliant with the IRS, a Qualified Appraiser must be hired to provide a Qualified Appraisal (see IRS Notice 2006-96). Relying solely on the assessed value of the real estate or submitting an inadequately supported appraisal report carries the potential for substantial overvaluation or undervaluation of the real estate, which could potentially result in future tax liabilities and/or penalties.

Regardless of whether the estate requires a retrospective appraisal, a current appraisal, an alternative valuation date, or a combination of valuations, Valiant Appraisal Services can help. We are qualified appraisers and we prepare IRS-compliant appraisal reports that also meet the Uniform Standards of Professional Appraisal Practice (USPAP).