Settling an estate is something you won’t know much about until you have to go through the process firsthand.
It can be a hard process, especially for the executor and family members involved.
If you are in a situation where you need a date of death appraisal, I hope this information helps you.
If you need a date of death appraisal in the San Francisco Bay Area, we can help you.
What is a Date of Death Appraisal?
Date of death appraisals, also known as estate appraisals or DOD appraisals, help to determine the Fair Market Value of real estate as of the time of the owner’s passing.
You may also hear this referred to as a time of death appraisal, day of death appraisal, or date of death home appraisal—they all mean the same thing.
So what is an estate appraisal exactly? It’s a property valuation for deceased estate purposes that establishes the DOD value (date of death value) of real property. This date of death real estate appraisal is critical for both legal and tax purposes.
They are usually completed by a state-licensed real estate appraiser when settling an estate. This appraiser is referred to as a qualified appraiser by the IRS, and they can serve as your appraiser for probate matters.
Anyone involved in the settlement process may order a date of death appraisal.
The executor of the estate or another family member usually orders them. The accountant or lawyer may also order the appraisal.
Why You Might Need a Date of Death Appraisal
The main purpose of a date of death appraisal is to help determine the fair market value of the real estate as of the owner’s passing. This date of death valuation for real estate is mainly used for probate and tax purposes.
If you’re wondering, “Do I need an appraisal for inherited property?”—the answer is almost always yes. Here’s why you might need an appraisal for inherited property:
Probate Appraisals
If you are the executor of an estate or the beneficiary of an inheritance, you may need a real estate appraisal for probate.
“Probate is the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries.” (Source)
A probate appraisal (sometimes called an estate appraisal for probate) helps determine the value of the real estate, which ensures a fair and equal distribution of assets. This probate property valuation is a critical step in the estate settlement process.
Appraisal for Estate Tax Purposes
A date of death valuation may also be needed for the IRS to determine whether or not taxes are owed on the property as of the date of death or in the future.
A qualified appraisal for estate tax purposes helps establish the property’s value at death. This real estate appraisal for estate tax purposes is essential for proper estate valuation.
Depending on the total value of the real estate owned by the person who passed, estate taxes may be owed.
This number can vary by state, so it would be best to do more research.
Capital Gains Tax and Step Up in Basis
When you inherit real estate from a deceased person, the basis of the property is “stepped up” to the property’s fair market value at the time of the person’s death. This is known as the stepped-up basis rule.
This means that if you sell the property after inheriting it, you may have to pay capital gains tax on the difference between the sale price and the stepped-up value.
A capital gains appraisal (or step-up value appraisal) will help to determine the basis at the time of death. This inheritance appraisal protects you from paying more taxes than necessary when you eventually sell.
Inheritance tax
In some states, inheritance taxes are owed by the beneficiaries who inherit property from a deceased person.
However, not all states have inheritance taxes, and the rules and exemptions for these taxes also vary by jurisdiction.
Estate Planning
A date of death appraisal can be used for estate planning purposes ahead of any tragedy. The appraisal can help the owner plan in advance for taxes, distributions, donations, or the general value of the real estate.
IRS Guidelines for Date of Death Appraisal
Understanding the IRS guidelines for date of death appraisal is crucial. The IRS is fairly vague when it comes to appraisal guidelines for DOD appraisals. Aside from the report-specific guidelines, they don’t explicitly specify inspection requirements.
Inspection
An estate appraisal can be completed with a full inspection or an exterior-only inspection. If there is enough information to produce a credible report, either is acceptable.
As a general rule, the more primary data the appraiser can gain about the subject property, the more accurate the appraisal will be.
I would not trust a desktop appraisal regarding a matter of this magnitude.
Timeline and Effective Date of Appraisal
You will want to order an appraisal as soon as possible, both for your sake and for the appraiser’s.
The appraisal is typically completed after the date of death and is often called a retrospective appraisal, historical appraisal, or retro appraisal.
This means that although the inspection date may be later in time, the effective date of appraisal is a date in the past (usually the date of death). Understanding what determines the effective date of the appraisal is important—it’s typically the actual date of death, not when the appraisal is performed.
A current value appraisal may also be ordered at the same time to determine the value at the time when the title is transferred. If the dates are close enough, sometimes only one appraisal will be needed.
Report Specific Guidelines
The appraiser should know the IRS report-specific guidelines for estate appraisals. There are additional requirements that your appraiser should be knowledgeable about.
Here is the full guide for estate administrators on the IRS website.
Date of Death Appraisal Cost
Many people ask about date of death appraisal cost. The cost varies depending on several factors including property type, location, and complexity. A date of death home appraisal for a standard single-family residence typically costs between $400-$800, but more complex properties or those requiring extensive research may cost more.
Hiring an Appraiser
Although this can be hard for everyone involved, the estate sale appraisal process doesn’t have to be difficult.
There is no reason to worry when professionals can help you through the process.
If you are working with an attorney or accountant, they will be able to help you with ordering the appraisal. Or you can order one directly and we can help you through the appraisal process itself.
We have completed hundreds of date of death appraisals in California over the years, and we know the specific IRS requirements needed for the appraisal. Date of death appraisals require significantly more information than a standard real estate appraisal. These nuances are ones that an inexperienced appraiser would not know.
If you need a date of death appraisal in the San Francisco Bay Area or have more questions, please don’t hesitate to reach out to me at [email protected] or click here for a free appraisal fee quote.
Frequently Asked Questions About Date of Death Appraisals
According to the IRS, the appraisal should be done within six months following the date of death. With that being said, the sooner you start the appraisal process, the better. You never know how busy appraisers will be in your area, and sometimes, the appraisal process can take up to a month from start to finish if the appraisers are busy.
The date of death appraisal is needed to determine the fair market value of the real estate as of the owner’s date of death. This is necessary when settling the estate either in probate or outside of probate.
FMV stands for Fair Market Value. According to the IRS, Fair Market Value is “…the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”
The appraisal should take the same time as a standard appraisal. Depending on the appraiser’s schedule, this could be anywhere from 1 to 2 weeks from start to finish.
If you are the estate administrator or involved in the estate settlement process, then you will most likely need a date of death appraisal. They can be used for probate, estate taxes, capital gains taxes, inheritance taxes, or estate planning.
DOD value stands for Date of Death value. It refers to the fair market value of a property on the specific date that the owner passed away. This DOD value is used as the basis for calculating estate taxes and establishing the stepped up basis for capital gains purposes.
You need an appraisal for inherited property to establish the fair market value at the time of death. This valuation is required for probate proceedings, calculating any estate taxes owed, and determining your cost basis for future capital gains tax purposes when you sell the property.
Many people ask how to determine date of death value of property. To determine the date of death value, you’ll need to hire a licensed real estate appraiser who specializes in retrospective or historical appraisals. They will research comparable sales from around the date of death and provide a professional opinion of value as of that specific date.
A qualified appraisal for estate tax purposes is an appraisal performed by a licensed appraiser that meets IRS requirements. The appraiser must be qualified to value the type of property being appraised, and the report must include specific information required by the IRS including the appraiser’s qualifications, methodology, and a detailed property description.
