What Is the House Worth on the Date of Death, and Do You Need an Appraisal?

The date-of-death value is what an inherited house was worth on the day the owner died, and in New Jersey it matters twice: the state asks for it on any inheritance tax return, and the IRS generally uses it as the starting point for figuring gain when the house is sold. Whether the estate needs a formal appraisal is the accountant's or attorney's call. A market evaluation helps everyone get on the same page, but it isn't the same document.

I'm Dennis Mark Interdonato with The Dennis Mark Group. When I start on an estate home in Monmouth or Ocean County, the value is the first thing everyone asks about: the executor, the heirs and the estate's professionals. Here's what the number is used for and how to get it right.

Why does the date-of-death value matter so much?

Because two different tax systems look at it:

• New Jersey inheritance tax. The NJ Division of Taxation says the tax amount depends in part on the date-of-death value of the assets and debts the person owned. Its guide for executors adds that fair market value should be reported as of the date of death, not as of the filing date.
• Federal income tax on the sale. IRS Publication 551 says the basis of inherited property is generally its fair market value at the date of death, and that if you didn't receive a Schedule A (Form 8971), basis can be figured using the appraised value at the date of death for state inheritance tax purposes. Publication 523 says the same for an inherited home.

So the same number can show up on the state return and then again, a year or two later, when an heir's accountant figures the gain. Getting it right once saves a lot of explaining later. More on the sale side in capital gains on an inherited house.

What's the difference between an appraisal and a market evaluation?

Who can do it, and what it's for. The NJ Division of Consumer Affairs' consumer brief on the State Real Estate Appraiser Board says only licensed or certified appraisers are permitted to appraise real estate, and it lists settling an estate as one example of when you may want to hire one. It also lists "not getting your fair share in a division of property" and "paying too much in taxes" among the risks a professional appraisal helps manage.

A market evaluation is what I do: an opinion of what the house should sell for now, backed by recent sales and my own walk-through. It's built for pricing and selling the house, and for getting the executor, the heirs and the attorney to work from the same number. I'll share it with the estate's accountant, and they decide whether a formal appraisal is needed for the tax side.

How is a house valued as of a past date?

Using sales from around that date, not today's market. If the owner died in March and the estate gets to the value in September, the question is still what the house would have sold for in March, in the condition it was in then. Ask any appraiser the estate hires to value it as of the date of death, not the day of their visit.

Condition is the part families forget. By the time an appraiser or I walk through, the estate sale may be done, the house emptied, and a few repairs made.

What goes into the value of an older estate home?

Estate homes in Monmouth and Ocean County have often gone years without updates. The value depends on the things buyers and their inspectors look at:

• The roof, windows and siding, and how much life is left in them
• The mechanicals: heating, hot water, electric service and any oil tank
• Kitchens and baths, which buyers price as projects when they're dated
• Layout, lot and location compared with recent sales nearby

I spent years building and remodeling New Jersey homes before I sold them, so I walk an estate house the way a builder does and put a real cost on what a buyer will notice. Values can change block to block, so the comparable sales have to be truly local.

Does the value change if the estate fixes the house up?

The date-of-death value doesn't. It's fixed to that day. What changes is the sale price, and the estate's accountant will tell you how repair and improvement costs are treated. Publication 551 explains that a property's basis can be adjusted for certain costs after it's acquired, such as improvements. That's one reason I bring two plans to an estate, as-is and with a few targeted updates, with what each one should bring, before anyone spends a dollar.

What are the common valuation mistakes?

• Using the property tax assessment. The Surrogate may ask for the tax bill, but an assessment is a different number set for a different purpose.
• Using today's value for a past date. The date of death is the date that counts.
• No photos before the clean-out. The condition on that day disappears fast.
• Heirs working from different numbers. One shared evaluation heads off most arguments. See do all heirs have to agree to sell.
• Pricing the listing from the date-of-death number. The list price comes from the market the day the house goes live.

Frequently Asked Questions

Do I need a date-of-death appraisal for an inherited house?

Ask the estate's accountant or attorney. The IRS points to the appraised value used for state inheritance tax purposes when no Schedule A was received, and New Jersey says only licensed or certified appraisers may appraise real estate.

Can a real estate agent's market evaluation be used instead?

It's useful for pricing and for keeping everyone on the same page. Whether it's enough for the tax side is your accountant's decision.

Can the value be figured months after the death?

Yes. It's based on sales and conditions around the date of death, so photos and records from that time help.

Is the date-of-death value the same as the list price?

Not necessarily. The list price comes from the market when the house goes up for sale. Start with what the house is worth today.

This is general information, not legal, tax or lending advice. The estate's accountant decides what valuation the tax returns need.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. See how I handle estate and probate home sales.

Keep reading

• The free Estate & Probate Guide
• What will the home sell for?
• How to sell an inherited house in New Jersey
• Have a question this didn't answer? Send it to Dennis Mark.