To determine a home’s fair market value at the date of death, hire a state-certified residential appraiser to perform a retrospective appraisal: the appraiser reconstructs what a willing buyer would have paid a willing seller on the exact date the owner died, using comparable sales from the weeks and months surrounding that date. That number becomes the heirs’ new cost basis in the property and, for estates large enough to file a federal estate tax return, the value reported to the IRS.
Why the Date-of-Death Number Matters
Two separate tax consequences ride on this figure.
The first is the heir’s cost basis. Property inherited from a decedent takes a basis equal to its fair market value at the date of death, replacing whatever the original owner paid.1Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent This is the step-up in basis. If a parent bought the house for $120,000 and it was worth $450,000 when they died, the heir’s basis becomes $450,000. Sell it soon after for $455,000 and the taxable gain is $5,000, not $335,000. Without a defensible date-of-death value, heirs can’t prove the higher basis and end up paying capital gains tax they shouldn’t owe.
The second is the gross estate. If the decedent’s total assets exceed the federal filing threshold, the executor files Form 706 and reports every asset’s fair market value.2Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return For 2026 the federal basic exclusion amount is $15,000,000.3Internal Revenue Service. What’s New – Estate and Gift Tax Smaller estates may still need the number for state estate tax or to elect portability of a deceased spouse’s unused exemption.
The Methods, Ranked by What the IRS Will Accept
Certified Retrospective Appraisal
A formal appraisal by a state-certified residential appraiser is the standard the IRS expects. A qualifying appraisal includes a complete property description, a comparable sales analysis, and a stated basis for the value conclusion. The appraiser must be qualified and independent, and their fee cannot be tied to the value they reach.4Internal Revenue Service. Revenue Procedure 96-15 – Statement of Value Most probate courts either require or strongly prefer a certified appraisal when real estate is part of the inventory.
Arm’s-Length Sale Shortly After Death
If the home actually sells to an unrelated buyer within a few months of the death date, that sale price is strong evidence of fair market value at death. The argument weakens as the gap grows and market conditions shift.
Broker’s Price Opinion or Comparative Market Analysis
A real estate agent can pull recent comparable sales and give you an informal read. These reports work for planning conversations but lack the documentation and independence requirements the IRS looks for on a Form 706 filing.
County Assessor Records
Assessed values are easy to find but set on a different cycle and for a different purpose. They often lag the market by years and can miss real value by wide margins. Use them as a rough reference, not a defensible number.
How a Retrospective Appraisal Actually Works
A retrospective appraisal is not a current-market opinion. The appraiser’s job is to reconstruct value as of a specific past date. They pull comparable sales from the weeks and months surrounding the death, analyze the market conditions that existed then, and value the property in the condition it was in on that date.
To do the work, the appraiser needs the decedent’s name, the exact date of death, the property address, and access for a physical inspection when possible. Photographs, repair records, and renovation receipts from around the death date are especially useful, because the appraiser is valuing the home as it existed then, not as it exists now. Any renovation or damage since the owner died needs to be identified so the appraiser can adjust.
The finished report describes the property, lists the comparable sales used, shows the adjustments applied to each comparable, and states a final opinion of value. The executor attaches that report to tax filings and provides it to the probate court. Expect to pay roughly $400 to $1,500 for a retrospective residential appraisal, with complex or high-value properties at the upper end. The cost is an allowable estate administration expense.
When the Number Is Due
If the gross estate exceeds the federal filing threshold, Form 706 is due nine months from the date of death.5Internal Revenue Service. Frequently Asked Questions on Estate Taxes Filing Form 4768 before that deadline buys an automatic six-month extension, for fifteen months total. Order the appraisal early. Retrospective work takes several weeks, and waiting until month eight leaves no room for complications.
Estates that file Form 706 also owe a separate report to beneficiaries. The executor files Form 8971 with the IRS and gives each beneficiary a Schedule A showing the basis the estate reported for the property they received.6Office of the Law Revision Counsel. 26 U.S. Code 6035 – Basis Information to Persons Acquiring Property From Decedent The deadline is 30 days after Form 706 is filed or was required to be filed, whichever comes first.7Internal Revenue Service. Instructions for Form 8971 and Schedule A Beneficiaries generally cannot later claim a basis higher than the value on Schedule A, so the appraised number locks in the heir’s tax position.
The Six-Month Alternate Valuation Option
Federal law lets an executor value estate assets as of a date six months after death rather than the date of death itself.8Office of the Law Revision Counsel. 26 U.S. Code 2032 – Alternate Valuation Any asset sold or distributed during that window is valued on the date of that transaction.9eCFR. 26 CFR 20.2032-1 – Alternate Valuation This election is available only when it reduces both the gross estate and the total estate tax owed, so an appreciating market takes it off the table. It is all-or-nothing across every asset, and once elected on a filed return it is irrevocable.
One trade-off: the alternate date also becomes the heirs’ new basis. The estate may save on estate tax while the heirs inherit a lower basis and a larger potential capital gain when they sell. Run both numbers before committing.
Penalties for Undervaluing
The IRS penalizes valuation understatements on a sliding scale. A reported value that is 65% or less of the correct value is a substantial valuation understatement and carries a 20% penalty on the resulting tax underpayment. A reported value that is 40% or less of the correct amount is a gross valuation misstatement, and the penalty doubles to 40%.10Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments The penalty applies once the underpayment attributable to valuation understatement exceeds $5,000, a threshold that real estate hits easily. Report a $900,000 home at $500,000 and you are in substantial understatement territory. A well-documented appraisal from a qualified, independent appraiser is the best defense; the IRS is much less likely to challenge one than a figure pulled from an assessor’s roll or an informal estimate.
Partial or Joint Interests Are Valued Differently
If the decedent owned only a fractional interest in the home, such as a 50% share held with a sibling or partner, the estate does not report a straight proportional slice of full market value. Fractional interests generally sell for less than their pro-rata share because the buyer cannot control the property or force a sale without litigation. Courts have accepted discounts for fractional real estate interests in the estate tax context, though the size of the discount turns on the specific ownership arrangement. Discount calculations draw more IRS scrutiny than almost any other valuation issue, so an appraiser experienced in partial-interest work should handle these.