IRS Step-Up Basis Appraisals in Orlando

Understanding Step-Up in Basis

When someone inherits real estate, the property's tax basis "steps up" to its fair market value as of the decedent's date of death. This stepped-up basis can provide significant tax benefits to heirs who later sell the property, as capital gains are calculated from the stepped-up value rather than the original purchase price.

For a date-of-death valuation, discuss the intended use, available property records, and tax-reporting requirements with your tax adviser and proposed appraiser. Acceptance by the IRS is not guaranteed.

Why You Need a Date-of-Death Appraisal

While tax assessments or online estimates might seem convenient, they often don't reflect true market value and can be challenged by the IRS.

For a retrospective assignment, confirm the proposed appraiser's applicable qualifications, available historical sales data, and report scope. Discuss the effective date and tax-reporting requirements with your tax adviser.

Estate Tax vs. Inheritance Tax Appraisals

Federal estate taxes apply to estates exceeding the current exemption threshold. For these estates, accurate property valuations are critical for calculating estate tax liability. The IRS closely examines real estate values on estate tax returns, making professional appraisals essential. For general estate matters, see our estate appraisal services.

Even when federal estate taxes don't apply, step-up basis appraisals remain valuable for capital gains tax planning. When heirs eventually sell inherited property, they'll need documentation of the stepped-up basis to calculate their gain correctly.

If the estate is also going through probate court proceedings, discuss whether one report can address the intended uses with your advisers and the proposed appraiser.

Retrospective Appraisal Methodology

A retrospective appraisal requires the appraiser to "go back in time" and analyze the market as it existed on a specific historical date. For date-of-death appraisals, this means:

• Researching comparable sales that closed before the effective date
• Analyzing market conditions and trends as of that date
• Considering the property's condition at the time (not current condition)
• Applying adjustments appropriate to the historical market
• Documenting the analysis to support the retrospective value

Historical valuation requires relevant data and analysis for the effective date. Confirm the proposed appraiser's retrospective experience and the information available before engagement.

IRS Form 706 and Form 8283

For a Form 706 filing, discuss the real estate information required for Schedule A with your tax adviser and proposed appraiser. Confirm the intended use and scope before ordering.

For a charitable contribution, ask your tax adviser about Form 8283 and qualified-appraisal requirements. Confirm the proposed appraiser's applicable qualifications and whether the assignment can be accepted.

Timing Considerations

Estate tax returns are generally due nine months after the date of death, though extensions are available. However, we recommend obtaining the appraisal as soon as practical after the death, while the property's condition at that time can still be accurately documented. If you're facing a deadline, our rush appraisal service can help.

If the property has been modified, renovated, or significantly changed since the date of death, the retrospective appraisal must still reflect the property's condition as of the effective date. Early documentation through photos, inspection notes, and family input helps ensure accuracy.

Alternate Valuation Date

Ask your tax adviser whether an alternate valuation date applies. If more than one date is needed, discuss historical data availability, qualifications, scope, fees, and scheduling with the proposed appraiser before engagement.

Working with CPAs and Estate Attorneys

For a property in Orlando, discuss any coordination and documentation needs with your CPA, attorney, or trust administrator and the proposed appraiser. Confirm scope before engagement.

If you're a tax professional or attorney seeking an appraiser for your client's estate, we welcome the opportunity to discuss the assignment and provide a fee quote.

Capital Gains Tax Planning

Assume a home originally purchased for $100,000 is worth $500,000 at the owner's death and the general date-of-death basis rule applies. The heir's starting basis would be $500,000. If the home is later sold for $510,000, with no subsequent basis adjustments or selling costs, the illustrative gain would be $10,000 before applying any other tax rules. Elections, exceptions and other adjustments can change the basis or taxable result. Ask the executor or tax adviser to confirm the applicable basis, valuation date and treatment of the actual sale.

Ask your tax adviser what evidence is needed to support the claimed basis. Discuss the effective date, applicable qualifications, and reporting scope with the proposed appraiser. An appraisal does not guarantee a tax benefit or IRS acceptance.

Our IRS Appraisal Qualifications

Confirm applicable qualified-appraiser and qualified-appraisal requirements with your tax adviser and proposed appraiser before engagement. Questions to address include:

• Discuss required qualifications for your Florida assignment
• Discuss applicable Uniform Standards of Professional Appraisal Practice requirements
• Required continuing education and professional development
• Errors and omissions insurance coverage
• No prohibited relationships that would disqualify the appraisal