FMV of house after a death - tax purposes

[perinova]

I am putting together a list of 'what-to-dol' after spouse dies....

Paying for an official appraisal is probably a good idea but will cost $.

Does anyone know if the step-up basis of a house can be determined using Zillow or Redfin estimates?

 

[MC Rider]

You can check but I doubt IRS will go for that.

 

[audreyh1]

We didn’t do an appraisal like for a mortgage. Instead we contacted an estate appraiser recommended by the estate attorney for the land and buildings and he did an appraisal based on DFs death date to set the FMV. Long document with detailed comparative pricing for properties at the time that can be used in the future.

 

[ncbill]

When my relative died I got an appraisal on their home.

Their house (already in a revocable living trust) took over a year to sell & sold for far less than the appraisal.

So I distributed long-term capital losses to the beneficiaries via K-1s on the final trust return.

 

[Wetfly93]

House appraisal for FMV

When my mother passed away we utilized the county appraisal for property taxes as our initial figure. We knew this may be near the market price or below but disclosed how it was valued. We did place the home furnished on the market and it sold for far more. We then adjusted the FMV to the sales price. Naturally you have expenses to sell the home which will be a cost to the trust. The double wide home was also in a trust document. The home sold within two months of being on the market and less then 3.5 months after death of our mother.
I do not believe you have a step up in basis for a home only securities.

 

[OldShooter]

Paying for an official appraisal is probably a good idea but will cost $. Does anyone know if the step-up basis of a house can be determined using Zillow or Redfin estimates?

WADR this is not a place to save money. As a percentage of the house value the cost of an appraisal is tiny and if if gives you a number higher than Zillow or Redfin it has probably paid for itself. If it doesn't, then use the Zillow or Redfin number. Or get a couple more appraisals and keep the one with the the highest number.

 

[MichaelB]

I am putting together a list of 'what-to-dol' after spouse dies....

Paying for an official appraisal is probably a good idea but will cost $.

Does anyone know if the step-up basis of a house can be determined using Zillow or Redfin estimates?

The challenge here is you are asking about a future event, so some of the factors affecting value are not known. A good appraisal is based on nearby comparative sales, and the greater number of recent nearby local sales, the more accurate the appraisal. This is just as important to mortgage lenders as it is to the IRS.

Since you have no way to know what data will be available, it’s probably a good idea to default to having an appraisal done. If at that future date there are lots of recent sales of nearby comparable homes, the appraisal might be skipped and Zillow used, but in that case it should be very well documented.

 

[cathy63]

... I do not believe you have a step up in basis for a home only securities.

The step-up in basis applies to all capital assets, including homes and other real estate.

 

[perinova]

The step-up in basis applies to all capital assets, including homes and other real estate.

I think what he meant is that, as a joint tenant, only one half of the house will step-up. I just realized this fact. Here in California there is also a community property option which may not be a interesting to consider.

 

[cathy63]

I think what he meant is that, as a joint tenant, only one half of the house will step-up. I just realized this fact. Here in California there is also a community property option which may not be a interesting to consider.

I think he was talking about inheriting his mother's house, so if she owned the whole home, then the heirs get a full step-up in any state.

The IRS rule from Pub 551 is "If a federal estate tax return doesn't have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes."

Realistically though, the IRS is extremely unlikely to ask you to justify your basis calculation. In addition to the full step-up in basis that you noted in community property states, the surviving spouse also gets a $500K cap gains exclusion if they sell in the first two years (assuming they meet the ownership and residency requirements) or $250K after that. Most surviving spouses selling their own homes aren't going to owe taxes even if their basis is a bit off, so it's a waste of the IRS' time to audit these things.

Here's my family's story: FIL died in 2016 and MIL continued to live in their home until she died last July. They had an appraisal done when FIL died, but it's moot now because the basis was stepped up again when MIL died. Zillow's current market value is about $2M below what we expect it to sell for later this year.

 

[pb4uski]

I am putting together a list of 'what-to-dol' after spouse dies....

Paying for an official appraisal is probably a good idea but will cost $.

Does anyone know if the step-up basis of a house can be determined using Zillow or Redfin estimates?

It depends. If the house is sold soon after death and is sold for something near estimates from Zillow, Redfin, realtor.com, etc then you could probably use the sales price as the fmv at the date of death.

Some jurisdictions in the US the assessed value for property taxes is theoretically fmv but in reality they set it a little lower to reduce the volume of grievances they get.

Also, remember that Zillow et al might provide reasonable values in more urban and dense suburban areas but are not very good in rural areas where properties are more unique.

But at the end of the day an appraisal doesn't cost that much. I just did one on a commercial building that cost around $2k, 0.3% of the value, and I have a quote for a residential appraisal for half of that, so probably not worth DIY unless the property has little value.

 

[Jerry1]

Just did two appraisals (my dad and DW’s mom passed). One was $450 and one was $850. It’s just not worth not getting an appraisal. However, if you wanted to try to save some money, you might be able to get a real estate agent to put together an unofficial appraisal by doing some comps (at least 3) and you’d probably be okay if the IRS ever did come calling. I got an appraisal as it appears both situations I’m dealing with might go in front of a judge or maybe a mediator at some point.

 

[DrRoy]

I would suggest that you need an independent appraiser that can leave a paper trail of the evaluation.

 

[audreyh1]

I would suggest that you need an independent appraiser that can leave a paper trail of the evaluation.

+1

 

[starry night]

Average two appraisals

Just did two appraisals (my dad and DW’s mom passed). One was $450 and one was $850. It’s just not worth not getting an appraisal. However, if you wanted to try to save some money, you might be able to get a real estate agent to put together an unofficial appraisal by doing some comps (at least 3) and you’d probably be okay if the IRS ever did come calling. I got an appraisal as it appears both situations I’m dealing with might go in front of a judge or maybe a mediator at some point.

We also did two appraisals and averaged the two for MV. This reduced the risk of taking a single appraisal that was too low, and it was worth the cost of two independent appraisals.

 

[OldShooter]

We also did two appraisals and averaged the two for MV. This reduced the risk of taking a single appraisal that was too low, and it was worth the cost of two independent appraisals.

I would have gotten the two and if they were not similar I would have gotten a third. Then I would take the highest one and throw the other(s) away.

 

[Montecfo]

If the property is to be sold relatively quickly, you really don't need to worry. Just use the values determined by the sale.

And these things are very unlikely to be questioned so not worth getting too worked up about it unless the property is unique or unusually hard to value.

 

[gauss]

I did my own DIY appraisal on a Condo that I inherited from my father. There were over 200 units in the development with 2 different layouts. I had about 6 sales to work with. I pulled the sales prices from the county register of deeds office.

I also served as Personal Representative for my MIL's estate. DW also inherited a condo. This unit had fewer units so I just took the Zillow value.

Both units were not sold for several years until after date of death. Both units sold for the 150k-210k range.

Hopefully we won't be questioned by the IRS.

On a related note, I also authored the Personal Representative Deeds to transfer title of the properties from the estates to the beneficiaries. The first one to sell passed the "title insurance test" when the unit was sold to a third party and the title insurance policy was issued without question (sigh of relief).

-gauss

 

[yclipse]

If the estate or the distributee sell the house within a short time of the death, in many cases it is fair to conclude that the sale price is the date of death value.

 

[Original Wally]

The step-up in basis applies to all capital assets, including homes and other real estate.

OF COURSE the exception is that deferred accounts [401(k), 403(b),457 and IRA accounts don't get that step up.

 

[Texas Proud]

Now I doubt that it matters today, I did an estate tax return many years ago and the deceased had like 10 to 15 rental homes... we got all appraised and when we had the audit the IRS disagreed with all values...


The funny thing is that they wanted them higher so there would be more estate taxes. I told the beneficiary that was great as they would get more depreciation.

 

[jazz4cash]

OF COURSE the exception is that deferred accounts [401(k), 403(b),457 and IRA accounts don't get that step up.

You can call it an exception I guess but basis is not defined for deferred accounts so there is nothing to step up.

 

[Another Reader]

Now I doubt that it matters today, I did an estate tax return many years ago and the deceased had like 10 to 15 rental homes... we got all appraised and when we had the audit the IRS disagreed with all values...


The funny thing is that they wanted them higher so there would be more estate taxes. I told the beneficiary that was great as they would get more depreciation.

Did the IRS provide comps to support their opinion of value?

 

[Texas Proud]

Did the IRS provide comps to support their opinion of value?

Nope, they just had a printout of what they thought the price would be..


It was back when even small estates paid taxes so they wanted some extra on their audit...

 

[pb4uski]

What was the estate tax rate? Increase in estate tax relative to increase in estate value?