Determining the value of inherited property

5 min read

Getting your own appraisal of real estate left to you in a will

  • An independent estimate of the value of any home, land, or commercial building you’ve inherited helps you make smart decisions.

  • If you sell, the capital gains tax you pay is calculated using two numbers: the value of the property when your loved one died (known as cost basis), and its current value.

  • Tax assessment records and local realtors can help you, but the most legally defensible estimate is from a professional appraiser.

  • With a professional appraisal of the property, you can make sure you’re being treated fairly by the executor and other heirs—and you can decide whether to sell.

Settling an estate is never an easy matter, even if your loved one had a will. And making decisions about inherited property can be emotionally fraught, even if there is a competent executor leading the way. If you are an heir to property, it may be important for you to get your own estimated property valuation for ultimate peace of mind.

This is particularly true if the real estate is left to several heirs, not just you. And for reasons related to stress, family history, and so on, you may suspect they are not acting in your best interest.

Making sure you are fully informed about the value of the property your loved one left you in their will can help you protect yourself financially and make better decisions about what to do.

Selling the property

In the immediate time following a significant loss, emotions are heightened, and it may not be the best time to make binding long-term decisions about keeping or selling the property. However, if you do decide to sell, it is important to know the tax implications.

The two most important numbers to know are: the value of the property at the time your loved one died (known as cost basis) and how much it is worth currently. 

Any taxes you pay on the sale of inherited property are determined by cost basis. For example, if you inherit a house worth $500,000 on the date of the owner’s death, its cost basis would be $500,000. If you sold it for $600,000, you would owe capital gains tax on the additional $100,000.

If a property is inherited jointly by more than one heir, that process can become more difficult, as the home must be sold for the inheritance to be split up among the heirs.

Sometimes forcing a sale is a family’s nuclear option (no matter what side you’re on), so it’s important for everyone to fully understand the financial implications of keeping the house, selling it to one heir, or selling it outright. To do this fairly, you’ll need a reputable evaluation of the home’s fair market value.

Evaluating your property’s worth

There are several ways to determine fair market valuation, depending on your purposes. In order to calculate cost basis, you use either the value of the property on the date of the original owner’s death or a date selected by the executor no later than six months after the death.

Using tax assessment records

If you’re just getting started and want to do a quick check of the property’s value, there’s no harm in checking out an online real estate value calculator—they’re generally fast and easy to use. But their estimates can vary greatly, and they are not valid for tax or other legal purposes. To determine the real value of the property, you’ll need to do more research.

Start by requesting the recent tax assessment records from the county clerk’s office. While assessments that haven’t been adjusted in years can’t help you determine the property’s value, the IRS allows heirs to use the home’s assessed value on the date of the owner’s death for cost basis.

If the tax valuation is low, however, you and any other heirs would have to pay a higher capital gains tax when you sell the property. 

Getting local realtors’ estimates

For a more accurate estimate, you can get a written statement from a realtor. While this is not as valid for your dealings with the IRS as an official appraisal or tax assessment, it can still be useful if you secure it in good faith.

Valuing real estate is somewhat subjective, so you should ask more than one local real estate agent to assess the property and provide a written estimate referring to comparable properties in the neighborhood and local market conditions.

You can then take the average as a reasonable value. Beware: A good real estate agent will give you a realistic estimate, but an unscrupulous agent trying to lure you to sell might give you false expectations about the money you can make with an overly high estimate.

Hiring a real estate appraiser

The most reliable and legally defensible estimate comes from a formal appraisal conducted by a licensed real estate appraiser.

The appraiser can determine the value of the home on the date you and the other heirs inherited it and its current value. If you and the other heirs held the home for a long time, its value may have changed significantly.

You’ll also need an appraisal if you inherited commercial property or income-producing residential property, such as a duplex or apartment building.

The most reliable and legally defensible estimate comes from a formal appraisal conducted by a licensed real estate appraiser.

To find a licensed appraiser, ask a local real estate agent, mortgage broker, or bank for a recommendation. You can expect to pay at least several hundred dollars for a residential appraisal and more for a commercial property appraisal.

A fair market estimate of property you inherited can help you make sure you’re being treated fairly by the executor and other heirs, and put to rest any questions you may have about whether the property is really worth as much (or as little) as you have come to believe.

Even if there’s been a delay in selling because it was too difficult to part with the property at the time or to make fair decisions for all, you’ll be able to use the figures to calculate your costs and determine whether you want to keep or sell. Your informed decision can help prevent the deep price of emotional and financial mistakes.

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