Appreciated Real Estate Requires a Real Estate Appraiser for Estate Purposes

Real estate valuation of a family asset can be one of the most important steps for estate filing purposes. It is often an overlooked step in the process, but it can lead to the largest tax savings on the sale of an appreciated estate asset, which is often sold after a family member passes away. Many people don’t realize the importance of taking the time to arrange a real estate appraisal for estate purposes. Often, people are led down the path of quickly selling a family member’s home and suddenly find themselves tasked with reporting on the basis of the property sold. This can be one of the biggest mistakes a family can make during a difficult time. If the family seeks a proper valuation and works with a CPA to establish the basis using a qualified appraiser, they can avoid costly mistakes or major headaches.

Why Real Estate Appraisals Matter in Estate Filings
A home is given a “step-up” in basis, which is a tax provision that resets the cost basis of an inherited asset — usually it’s the fair market rule on the date of the original owner’s death rather than the original purchase price. Let’s explain how a home passes from one family member to another by virtue of an inheritance. The simple act of using a fair-market-step-up in value based on a certain date can allow a family member selling the home, regardless of how much the real estate appreciated over 55 years, to properly report the real estate sale and reveal significant tax savings. The most important step is to utilize the valuation of the real estate based on, or very close to, the death of your family member’s real estate owner. The real estate upon transfer of ownership upon the passing of the family member will transfer the real estate at a stepped-up value, or in other words, the fair market value of the property on the date of death.

How the Step-Up in Basis Actually Works
The appraisal for estate purposes should be performed at or near the date of death to determine fair market value. For example, if a home was purchased in 1970 for $25,000 and $75,000 in improvements were made over the life of the property, many assume the basis is $100,000. That assumption is incorrect and represents a common misconception. If the homeowner passes away in 2026 and the home’s fair market value at the date of death is $750,000, some believe the taxable gain on the sale would be $750,000 minus $100,000, or $650,000. This leads families to believe they owe capital gains tax on decades of appreciation.

This is where improper reporting often occurs. When a home sale is reported incorrectly, families may end up paying unnecessary taxes to the IRS and, in some cases, the state. Working with a CPA who understands estate property reporting can prevent these errors and reduce stress during an already emotional process.

If the family members who inherit the home obtain a properly performed appraisal establishing the home’s fair market value at $750,000 or near that amount at or near the date of death, and the home sells for $750,000 shortly thereafter, the stepped-up basis eliminates the gain entirely. In this case, the calculation becomes $750,000 minus $750,000, resulting in no taxable gain on the sale. This adjustment eliminates capital gains taxes on appreciation that occurred during the owner’s lifetime. This same adjustment applies to inherited stock and other capital assets, not just real estate.

Take the Right Step Before Selling Inherited Property
If your family is navigating the sale of inherited real estate or inherited stocks, timing and valuation matter more than most people realize. Establishing fair market value correctly can prevent unnecessary tax exposure and long-term complications. Scheduling a consultation with Leone, McDonnell & Roberts allows you to work with experienced professionals who understand how to coordinate qualified appraisals, establish proper basis, and guide estate decisions with clarity and care.