How to get a date of death valuation?
Ask Phyllis: a blog series of frequently asked real estate questions.
Dear Phyllis,
I am the trustee of my brother’s estate. The trust attorney’s secretary told me I need a date of death valuation for his Eagle Rock home for tax purposes. Each time I talk to the attorney, it is $500, so I hope you can help explain how to get a date of death valuation and the approximate cost. Lana
Dear Lana,
I am sorry for the loss of your brother. One of your first responsibilities as the trustee will be to provide the court and the IRS with an estimate of the estate’s “reasonable worth” at the time of your brother’s passing. This is known as a “Date of Death Valuation,” sometimes called a “Date of Passing Valuation”. It typically involves an inventory and analysis of the possessions and property the decedent, your brother, left behind, including real estate.
When you sell the Eagle Rock home, you may qualify for a step-up in basis at the time of death. This adjusts the property’s value for tax purposes. Capital gains taxes apply to any increase in value after the date of death. The gain equals the difference between the sale price and the stepped-up basis. You then subtract net selling costs, including brokerage, escrow, and title fees. Some improvement costs may also qualify as deductions. However, consult your accountant to confirm eligible expenses.
For example, assume the home’s value at death was $1,000,000. You sell it for $1,200,000. Your selling costs total $80,000. In this case, the gain is $120,000, before any deductible improvements or depreciation adjustments.
So how do you determine the value of your brother’s home on the date of his death? The most acceptable method to determine the basis is to hire an appraiser. This may cost around $800.00, and a real estate agent can recommend an appraiser.
If you list his home, an experienced trust real estate agent should be able to prepare a free Date of Death Valuation (aka date of passing evaluation). As a courtesy, I provide these for my trust clients when requested. When you hire an experienced trust real estate agent, they will be familiar with completing this valuation. Check with your attorney because they may believe the Realtor’s valuation will not have the same status with the IRS as a full-blown appraisal. However, it will often suffice.
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