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Death, Appraisals And Taxes

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Posted On: 01/22/2014

Question:

I had my parents’ home appraised for a date-of-death value, which differed from the assessed value and the real estate agent’s comparative market analysis. The agent who sold the house for me and with whom I am very pleased, said that the date-of-death appraisal is frequently on the high end in order to provide a good tax basis for the estate. Why would the appraised value be higher than the assessed property value or the broker’s price opinion?

Answer:

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As an heir you likely want the date-of-death appraisal to be as high as possible to limit tax costs. The reason is that you are inheriting the property at its “stepped-up” value – the value as of the time of death and not the owner’s purchase price.

In effect, if the property was bought for $200,000 and today is worth $600,000, then the $600,000 valuation would be your tax basis for the property. If you now sell for $600,000, there would be no capital gains tax. See a tax professional for specifics.

You say that the appraised value, the assessed value and the broker’s valuation of the property all differ. No problem, this is entirely common.

The assessed value is the market value of the property for tax purposes. In many jurisdictions, assessments are not made annually, some may be two or three years old. Also, assessments may be limited by local rules to prevent sharp tax increases. Because of such factors, the assessed value may not be current or fully reflect today’s fair market price.

The broker’s comparative market analysis (CMA) will be based on the recent sale of like properties in the same neighborhood. The broker’s valuation is designed to establish a sale price for the property.

The appraisers date-of-death valuation will produce a retrospective market value for the property, a value as of the day the owner died. This could be several months ago and it is very possible that market conditions have changed since that date.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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