How to Determine a Home’s Fair Market Value at Date of Death

To determine a home’s fair market value at the date of death, hire a state-certified residential appraiser to perform a retrospective appraisal keyed to the exact day the owner died. The appraiser reconstructs what a willing buyer would have paid a willing seller on that date, using comparable sales from the weeks and months around it and accounting for the property’s condition at the time. That number becomes the heirs’ new cost basis in the home and, for larger estates, the figure reported to the IRS on the estate tax return.

What Fair Market Value Means on a Specific Past Date

Fair market value is the price a willing buyer would pay a willing seller when neither is under pressure and both know the property’s condition. For a date-of-death valuation, the appraiser is not asking what the house is worth today. They are asking what it was worth on one specific day in the past, which may be months or even a year or two before the appraisal is ordered. That reconstruction is the whole job.

Why the Number Matters

Two separate tax calculations ride on this value, and a weak number can cost heirs real money on either one.

The first is the heir’s cost basis. Property inherited from a decedent receives a basis equal to its fair market value at the date of death, replacing whatever the original owner paid for it.¹ This is the “step-up in basis.” If a parent bought a house for $120,000 and it was worth $450,000 when they died, the heir’s basis becomes $450,000. Sell it shortly after for $455,000, and the taxable gain is only $5,000 instead of $335,000. A sloppy or missing valuation leaves heirs unable to prove the higher basis, forcing them to pay capital gains tax they shouldn’t owe.

The second is the gross estate. When someone dies owning assets above the federal filing threshold ($15,000,000 for decedents dying in 2026), the executor must file Form 706 and report every asset’s fair market value.²³ Even estates well below that threshold can trigger state estate taxes, since roughly a dozen states and the District of Columbia use much lower exemptions, with Oregon starting at $1,000,000 and Massachusetts at $2,000,000.

One wrinkle for married couples: in the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), both halves of community property receive the step-up when one spouse dies, not just the decedent’s half.¹ That makes the date-of-death valuation even more consequential for the surviving spouse’s eventual sale.

Methods Ranked by How Much Weight They Carry

Several approaches exist. They are not equally defensible.

Professional Appraisal

A formal appraisal by a state-certified residential appraiser is the gold standard. The IRS expects a complete property description, comparable sales analysis, and a clearly stated basis for the value conclusion. The appraiser must be qualified and independent, and their fee cannot be tied to the appraised value.⁴ Probate courts in most jurisdictions either require or strongly prefer a certified appraisal when real estate is in the estate inventory.

Comparative Market Analysis or Broker’s Price Opinion

A real estate agent can produce a comparative market analysis or broker’s price opinion from recent nearby sales. These are useful for an informal read, but they lack the documentation, methodology, and independence requirements the IRS expects for tax reporting. Using one for a Form 706 filing invites trouble.

County Tax Assessor Records

Assessed values are public and easy to pull, but they’re set on a different schedule and for a different purpose. They often lag the real market by years and can be off by wide margins in either direction. Treat them as a rough reference, not a defensible number.

Arm’s-Length Sale After Death

If the home sells on the open market to an unrelated buyer within a reasonable window after death, that sale price is strong evidence of date-of-death value. Tax courts have accepted post-death sale prices when the sale was genuinely arm’s-length and market conditions hadn’t shifted much. This works best within a few months of the death date; the longer the gap, the weaker the argument.

How the Retrospective Appraisal Works

A retrospective appraisal reconstructs value as of a past date. The appraiser pulls comparable sales from the weeks and months surrounding the death, analyzes the market conditions that existed then, and accounts for the property’s condition at that time rather than its current state.

To do the work, the appraiser needs the decedent’s name, the exact date of death, the property address, and ideally access for a physical inspection. Photographs, repair records, and renovation receipts showing the property’s condition around the date of death are especially helpful. If the home has been renovated or damaged since the owner died, the appraiser needs to know so they can adjust accordingly.

The finished report includes a detailed property description, the comparable sales used, the adjustments applied to each, and a final opinion of value. That report is what the executor attaches to tax filings and provides to the probate court. Expect to pay roughly $400 to $1,500 for a retrospective residential appraisal, with complex or high-value properties at the upper end. The cost is an allowable estate administration expense.

The Alternate Valuation Date

Federal law gives executors a second timing option. Instead of valuing estate assets as of the date of death, the executor can elect to value everything six months later.⁵ If any asset was sold or distributed during that six-month window, it’s valued on the date of that transaction.⁶

This election is narrow. The executor can only choose it if doing so reduces both the gross estate value and the total estate tax owed.⁵ If the home appreciated after the owner died, the election is off the table. It also applies to every asset in the estate, not just the house, and once elected on a filed return the decision is irrevocable. One trade-off: the alternate date also resets the heirs’ stepped-up basis to the lower value, so the estate tax savings can be partially offset by higher capital gains tax when heirs eventually sell. Run the numbers both ways.

Reporting Deadlines That Shape Your Timeline

If the gross estate exceeds the federal filing threshold, Form 706 is due within nine months of the date of death.⁷ An automatic six-month extension is available by filing Form 4768 before the original deadline. Order the appraisal early. A retrospective appraisal built on historical data can take several weeks, and waiting until month eight leaves no margin for complications.

Estates that file Form 706 also owe a separate basis report. The executor must file Form 8971 with the IRS and furnish a Schedule A to each beneficiary who inherited property.⁸ Schedule A tells the beneficiary exactly what basis the estate reported for their inherited property. It is due no later than 30 days after Form 706 is filed or was required to be filed, whichever comes first.⁹ Beneficiaries generally cannot claim a basis higher than the value reported on Schedule A, so the date-of-death valuation effectively locks in the heir’s tax position.

Penalties for Undervaluing

Reporting too low a number is expensive. If the value reported is 65% or less of the property’s actual value, the IRS treats that as a substantial valuation understatement and imposes a penalty of 20% of the resulting tax underpayment. If the reported value drops to 40% or less of the correct amount, it becomes a gross valuation misstatement and the penalty doubles to 40%.¹⁰ The penalty applies only when the underpayment attributable to the valuation understatement exceeds $5,000, which real estate easily clears. A well-documented appraisal from a qualified, independent appraiser is the best protection; the IRS is far less likely to challenge one than a number pulled from the assessor’s roll or an informal estimate.

Partial or Joint Interests

Not every decedent owns their home outright. When someone dies holding a fractional share, say 50% with a sibling or business partner, the estate does not simply report half the home’s full market value. Fractional interests are generally worth less than their proportional share, because a buyer of a partial interest can’t control the property or force a sale without legal proceedings. Courts have accepted discounts for fractional ownership in the estate tax context, though the size depends on the specific arrangement and facts. These valuations invite IRS scrutiny more than almost any other, so use an appraiser experienced with partial interests.

1
Office of the Law Revision Counsel. 26 U.S. Code 1014 – Basis of Property Acquired From a Decedent
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Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
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Internal Revenue Service. What’s New – Estate and Gift Tax
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Internal Revenue Service. Revenue Procedure 96-15 – Statement of Value
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Office of the Law Revision Counsel. 26 U.S. Code 2032 – Alternate Valuation
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eCFR. 26 CFR 20.2032-1 – Alternate Valuation
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Internal Revenue Service. Frequently Asked Questions on Estate Taxes
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Office of the Law Revision Counsel. 26 U.S. Code 6035 – Basis Information to Persons Acquiring Property From Decedent
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Internal Revenue Service. Instructions for Form 8971 and Schedule A
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Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments