FMV of inherited property

[JenMO]

Client dies, leaves home to kids on beneficiary deed. Kids are going to sell, their cost will be FMV and if house sells within a reasonable amount of time, selling price is FMV. Had someone else tell me that if there wasn't an appraisal done, kids would have to pay on amount received. Does there have to be an appraisal for FMV to be established? I think selling price establishes FMV. Am I wrong, is an appraisal necessary?

[Burke]

No, while helpful to establish FMV, an appraisal is not required and is only an appraiser's opinion anyway. If it sells right away, generally that is the FMV. Your source is totally wrong. Tax assessment records are often used in lieu of appraisals.

[JenMO]

Thanks, I think appraisals are needed in some cases, but I didn't feel this was one of them.

[Roland Slugg]

Kids are going to sell, their cost will be FMV.

Well, their basis will the property's FMV on the DOD.

If house sells within a reasonable amount of time, selling price is FMV.

Yes, selling price is definitely the property's FMV on the day it sells, but that doesn't mean it had the same FMV on the day the former owner died. That depends on several factors, of which the three that are probably the most important are: (1) How much time elapsed between the DOD and the later sale, (2) the real estate market in that area ... i.e. rising? Falling? Stable?; and (3) the relative value of the property. A $50,000 house would probably change very little in a few months, whereas a $1,000,000 house might change considerably.

Does there have to be an appraisal for FMV to be established?

The strict answer to that question is "No." If someone dies, and the property is sold one month later, the selling price is very strong evidence of the property's FMV on the DOD. Six months later? Not so reliable. One year later? Even less so. Two years later, in a strongly appreciating market and a house worth, say, $750k? An appraisal would be imperative IMO.

Fortunately, in most ordinary situations a forensic appraisal is just as good or even better than one done concurrent with the DOD.

Tax assessment records are often used in lieu of appraisals.

Those might be reliable in some states, but in the two with which I am familiar ... CA and NV ... tax roll values are often off by an order of magnitude. For that reason I would never use a tax roll value to establish FMV.

[taxea]

The assessors value is frequently less that the FMV. I would never rely on the assessed value.
The purpose of an appraisal is to set the basis for the beneficiary at the time he/she received the property.
I would not recommend trying to sell without an appraisal.

[JenMO]

this is a small house in a small community. usually houses only depreciate when they sit empty and kids are primarly interested in selling and not paying tax on the proceeds

[taxea]

this is a small house in a small community. usually houses only depreciate when they sit empty and kids are primarly interested in selling and not paying tax on the proceeds

so how do you get the basis which is needed to report the sale if you don't have a document that says what the FMV was at the time it was inherited?

[JenMO]

within a reasonable time, fmv is what the house sells for. appraisals need comparable sales to come up with the value. sometimes comparable sales aren't even in the area or town. I think this needs to be evaluated per each item. I do think an appraisal is needed if the inherited property isn't for sale and is going to be sitting for a while or used by a beneficiary.

[taxea]

within a reasonable time, fmv is what the house sells for. appraisals need comparable sales to come up with the value. sometimes comparable sales aren't even in the area or town. I think this needs to be evaluated per each item. I do think an appraisal is needed if the inherited property isn't for sale and is going to be sitting for a while or used by a beneficiary.

years ago my house was increasing in value about 20K each month. That would give you a capital gain when the house is sold.
I don't know what would be a reasonable time should this be the case. I think an appraisal at time of death or within 6 months should be done.
How would you document the basis used if Uncle Sam comes to call?

[TAX4US]

TP died 5 years ago. Will directed that EX sell real estate and dispurse $ to heirs. On inventory file with court the value was 158K. Estate paid inventory tax on that value. Real estate this area hard to sell. Estate finally got it sold for 125K to move on and settle estate. Can this value 158K be used as FMV for sale. County assessment was 168K at time of death. What do you think?

[Burke]

I very often use the inventory value when filing for probate as the FMV for basis.