If you are the personal representative (f.k.a. executor or executrix) of an estate, the strategic financial question you should be asking is, does the alternate valuation date election make sense to save on estate tax?
IRS rules regarding filing of a decedent’s final taxes return allow for a “special election” to use a value six months after the date of death. As the personal representative you may elect to use an “alternate valuation” date of six months after the date of death. If real estate values have declined, an alternate home appraisal value will be lower which can lower your estate tax bill.
Choosing an Alternate Valuation Date
The special election is permitted only if the total value of the gross (entire) estate is lower on the alternate valuation date compared to the date of death. Obviously choosing to use the alternate date wouldn’t make sense otherwise. If a home or any other assets are sold after death, you have to use the date of the sale (date of disposition). The value does not revert to the date of death automatically.
Are there cases when using the alternate date is not advisable even if it is lower? Possibly and this is a question for your CPA. It may not be advisable if an estate is being passed under the unlimited marital deduction rule or if estate taxes on the date of death equal zero.
An estate tax return is due within nine months of the date of death so it is best to choose within that time frame, however this decision can be made within one year of the estate tax return filing date. If the market has declined after you file, but within one year of the date of death, you can refile, electing to use the alternate valuation date.
The alternate valuation date will be applied to the entire estate. You can’t pick one home or other asset (stock, bond etc.) to be valued six months after the date of death and maintain the original valuation date for other assets. This is an all or nothing strategy.
An estate with a mix of real estate as well as securities might end up with a larger tax bill if real estate increased but securities decreased in value, it could be that an alternate valuation date may not be the right approach. As the personal representative it is necessary to do a thorough asset inventory and accounting on both dates.
The IRS has published specific appraisal guidelines and regulations which must be followed to ensure compliance in the event of an audit. You are required to maintain both appraisals in your estate tax filing records
When you need a date of death appraisal choose a reputable real estate appraisal company which specializes in producing IRS compliant date of death appraisals. We are that company in the greater Boston Area and Eastern Massachusetts. We can also connect you with the right local CPA for your family’s needs