It happens more than most professionals realize. The family is overwhelmed, the timeline is compressed, and someone tells the executor that the sale price will serve as the value for tax purposes. The property is sold. The estate closes. And then the accountant calls, asking for the appraisal.
The Misconception About Sale Price as Proof of Value
The IRS does allow the sale price of an arm's-length transaction to serve as evidence of fair market value, but only under specific circumstances, and only when the sale occurs close in time to the date of death. The longer the gap between death and sale, the more the IRS will want a formal appraisal to support the reported value.
If the market moved significantly between the date of death and the date of sale, which happens regularly in Greater Boston, the sale price may not reflect the date-of-death value at all.
The sale price tells you what the market paid on the day of the sale. The date of death appraisal tells you what the market would have paid on the day the owner died. In a moving market, those are not the same number.
Retrospective Appraisals Can Still Be Done Even After the Sale
If the estate has already sold the property without obtaining a date of death appraisal, all is not lost. A qualified appraiser can still perform a retrospective valuation, researching market conditions as of the date of death and issuing a defensible opinion of value based on that past date.
The key is using an appraiser who understands retrospective methodology and can document the historical data compellingly.
What Professionals Should Do When This Comes Up
Estate attorneys and CPAs who encounter this situation should move quickly. The IRS's nine-month deadline for Form 706 creates real urgency. Even if the sale is complete, a retrospective appraisal ordered promptly after engagement will be more defensible than one ordered a year or two later.
The appraiser will need: the date of death, a description of the property's condition at that time, any documentation about improvements or deferred maintenance, and ideally detailed photos from around that period.
The Risk of Not Correcting It
Filing an estate tax return with an unsupported property value creates audit exposure. The IRS can challenge the reported value, assign its own determination, and assess additional taxes, plus interest and penalties.
A professional appraisal, even a retrospective one done after the sale, is far less expensive than an IRS dispute.
Ready to Get Started?
Whether you are managing an active estate, advising a client on planning, or working through a divorce with contested property,the Aladdin Appraisal team are ready to help.
Phone: (617) 517-3711
Email: info@aladdinappraisal.com
Web: www.aladdinappraisal.com
