Date-of-Death Appraisal 2026: What the IRS Requires and When
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Quick Answer
No federal rule makes an heir or executor hire an appraiser for an inherited house, but the heir’s tax basis is “the fair market value of the property at the date of the decedent’s death” (26 U.S.C. 1014(a)(1)), and an appraisal dated to that day is the usual proof of it. As of October 22, 2026, an estate under the $15,000,000 basic exclusion amount files no Form 706 and no Form 8971, and the cap that stops an heir from using a basis above the estate tax value does not apply at all when no estate tax is payable. An estate that must file Form 706 attaches “copies of any appraisals” to the real estate schedule and reports each value to the heirs on Form 8971 Schedule A within 30 days; the heir then cannot use a higher basis. The six-month alternate valuation date is open only if it lowers both the gross estate and the estate tax, so it is closed to every estate below the exclusion. Basis claimed at 150% or more of the correct figure draws a 20% penalty and at 200% or more a 40% penalty (26 U.S.C. 6662).
Key Takeaways
- The standard is a price, not a method. Treasury Regulation 20.2031-1(b) defines fair market value as “the price at which the property would change hands between a willing buyer and a willing seller,” neither under compulsion and both with reasonable knowledge of the facts. A forced sale price does not count, and a county assessment may not be used “unless that value represents the fair market value as of the applicable valuation date.”
- The IRS instructions for Form 706 do not say an estate must hire an appraiser for a house. For real estate on Schedule A they say to explain how the values were determined and attach copies of any appraisals, and the checklist says to attach any appraisals used. The one hard rule is for valuables: a total above $3,000 of art, jewelry or coins needs an expert’s appraisal under oath (Regulation 20.2031-6(b)).
- Below $15,000,000 the basis cap does not bite. Regulation 1.1014-10(c)(1)(ii) says that if no estate tax is payable after credits, no property is subject to the consistent basis requirement, and Form 8971 is not required for an estate under the basic exclusion amount. The appraisal is then the heir’s own evidence for a later sale.
- Above $15,000,000 the estate’s number becomes the heir’s ceiling. Form 8971 must be filed within 30 days of the Form 706 due date (or of the filing, if earlier), and the instructions say the beneficiary “cannot use a value higher than the value reported on the Schedule A.” The executor does not attach the appraisal to Schedule A.
- Alternate valuation is a trade, not a bonus. Section 2032(c) allows the six-month date only if it decreases both the gross estate and the estate tax. In our worked case a $17,000,000 estate that falls to $15,500,000 saves $600,000 of estate tax and gives up $1,500,000 of basis, a break-even of 40% on a later gain (our arithmetic).
- The penalty lines are written as ratios. A claimed basis of 150% or more of the correct amount carries a 20% penalty above a $5,000 underpayment; 200% or more carries 40%. On the estate tax return, a value of 65% or less of the correct value carries 20%, and 40% or less carries 40%. For a house worth $800,000, those lines sit at $1,200,000, $1,600,000, $520,000 and $320,000 (our arithmetic).
- A valuation discount lowers the heir’s basis as well as the estate tax. The IRS example in the Form 706 instructions turns a $100.00 pro-rata LLC value into $76.50 after a 10% and a 15% discount, an effective discount of 23.50%. On a $1,000,000 interest that is $235,000 less estate value and $235,000 less basis (our arithmetic).
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Date-of-death appraisal rules for 2026: valuation standard, Form 8971 and the basis cap, alternate valuation, penalties and worked examples
98 rows read from the Treasury Regulations, the Internal Revenue Code and the 2026 IRS instructions for Forms 706 and 8971: the valuation standard by asset, who must report values, the alternate valuation test, every penalty threshold, and worked examples marked as our arithmetic.
This page is about one decision: how to get a defensible date-of-death value and what the IRS does with it. The rule that resets the basis, and what it excludes, is on our step-up in basis page; the return itself is on our Form 706 page.
Three situations, three different jobs for the appraisal
The same appraisal does different work depending on whether the estate owes tax. The line is the $15,000,000 basic exclusion amount for 2026 deaths (Instructions for Form 706, Rev. July 2026), counted on the gross estate plus adjusted taxable gifts, which our estate tax exemption guide explains.
| Situation | Form 706 and Form 8971 | Does the heir’s basis have a ceiling? | What the appraisal is for | Source |
|---|---|---|---|---|
| Estate under the basic exclusion amount, no return filed | No Form 706 is required; Form 8971 is not required for an estate under the basic exclusion amount | No. If no estate tax liability is payable, no property is subject to the consistent basis requirement | The heir’s own proof of the basis on a later sale; the IRS can ask for it, and nobody has reported a value for you | Instructions for Form 8971; 26 CFR 1.1014-10(c)(1)(ii) |
| Estate files Form 706 only to elect portability | Form 8971 is not required for a portability-only filing | No: the cap applies only where estate tax is payable, and an estate this small owes none (our reading) | Same as above; the portability bands on the return are not a value for any one property | Instructions for Form 8971; Instructions for Form 706 |
| Estate over the line, Form 706 filed and tax payable | Both. Form 8971 is due 30 days after the Form 706 due date (with extensions) or 30 days after filing, whichever is earlier | Yes. The heir’s basis may not exceed the final value, and until there is one, the value reported on Schedule A | Supports the value on the return; it is attached to Form 706, not to Schedule A | 26 U.S.C. 1014(f); 26 CFR 1.1014-10(b); Instructions for Form 8971 |
Source: Instructions for Form 8971 (Rev. August 2025), pages 1-2; 26 CFR 1.1014-10, paragraphs (b) and (c); 26 U.S.C. 1014(f); Instructions for Form 706 (Rev. July 2026), saved on October 22, 2026. The portability-only cell on the basis cap is our reading.
Two details change what you do. First, section 1014(f)(2) limits the cap to property whose inclusion “increased” the estate tax, so an estate that owes tax only because of other assets still has a cap on those assets. Second, the executor’s value is not final until the period for assessing estate tax closes without a change, the IRS agrees to another figure, or a court rules (Regulation 1.1014-10(b)(1)); until then the heir may not claim more than the value reported on the statement (Regulation 1.1014-10(b)(2)). If the IRS or a court later sets a value, the executor has 30 days to send a supplemental Schedule A (Instructions for Form 8971).
What the IRS accepts as a value, asset by asset
The regulations do not ask for a credential. We searched the saved Instructions for Form 706, the Instructions for Form 8971 and the four valuation regulations for “qualified appraiser,” “certified appraiser” and “licensed” and found none of the three. They ask for a value that fits the definition of fair market value and a written explanation of how it was reached. The “qualified appraisal” rules for charitable gifts are a different set of rules and do not appear in these sources.
| Asset | What the IRS text says | What it means for the evidence | Source |
|---|---|---|---|
| House, land or rental | Fair market value is the price between a willing buyer and willing seller; a forced sale price is excluded; assessed value is not used unless it equals fair market value on the valuation date | A county tax value or an online estimate is not a date-of-death value by itself (our reading); a retrospective appraisal or a comparable-sale analysis dated to the death date fits the standard | 26 CFR 20.2031-1(b) |
| Rental with a mortgage | If the estate is liable for the mortgage, report the full value and deduct the loan on Schedule K; if it is not liable, report the equity. For the basis cap, the value is the gross value undiminished by the debt | Ask the appraiser for the property value, not the equity, so the same number works on the estate return and for basis | Instructions for Form 706, Schedule A; 26 CFR 1.1014-10(b)(3)(i) |
| LLC or partnership interest that owns real estate | Value is a fair appraisal of all the assets, including good will, plus the demonstrated earning capacity and the factors for closely held stock | Two layers: the property values, then any discounts for lack of control or marketability, with the effective percentage stated on the return | 26 CFR 20.2031-3; Instructions for Form 706, Schedule F |
| Shares with no market, such as a non-traded REIT or BDC | When there are no sales or bona fide bid and asked prices, value turns on net worth, prospective earning power, dividend-paying capacity and other relevant factors | A sponsor’s published NAV per share on or near the death date is evidence for those factors, not a safe harbor (our reading); see our page on [what heirs get from a non-traded fund](/articles/non-traded-reit-bdc-death-disability-repurchase-heirs-2026) | 26 CFR 20.2031-2(f) |
| Listed shares or REIT stock | The mean between the highest and lowest quoted selling prices on the valuation date | No appraisal is needed; the brokerage statement or exchange data for that day is the evidence | 26 CFR 20.2031-2(b) |
| Art, jewelry, coins, over $3,000 in total | An expert’s appraisal, under oath, filed with the return | This is the one place the rules require an appraiser | 26 CFR 20.2031-6(b); Instructions for Form 706 |
Source: Treasury Regulations 20.2031-1(b), 20.2031-2, 20.2031-3, 20.2031-6(b) and 1.1014-10(b)(3); Instructions for Form 706 (Rev. July 2026), saved on October 22, 2026. Cells marked “our reading” are ours.
The estate return treats the appraiser’s bill as an expense: the Form 706 instructions list “appraiser’s and accountant’s fees” among miscellaneous administration expenses deductible on Schedule J. We did not find a primary source for what an appraisal costs; fee levels come from appraisers’ own price lists and local forums, and we do not publish them as data. Ask for a fixed quote and the valuation date in writing.
Alternate valuation: the six-month date is a trade
Section 2032 lets the executor value the whole estate six months after death instead (property sold or distributed sooner is valued on that date). Section 1014(a)(2) then sets the heir’s basis at that later value. The statute puts a hard condition on it: the election is allowed only if it “will decrease” both the gross estate and the estate tax (section 2032(c)). The instructions add that it cannot be applied to only part of the property, that a protective election is possible, and that the election is irrevocable once made (section 2032(d)(1)); a late-filed return can carry it only if filed within one year of the due date.
The cases below use the 40% rate above the first $1,000,000 in section 2001(c) and the $15,000,000 exclusion, and ignore deductions, prior gifts and state tax. Every figure is assumed and every result is our arithmetic.
| Case | Gross estate at death | Six months later | Estate tax at death values | Estate tax at alternate values | Can the executor elect? | Effect on heirs’ basis |
|---|---|---|---|---|---|---|
| 1. Value falls, tax owed | $17,000,000 | $15,500,000 | $800,000 | $200,000 | Yes: both the estate and the tax decrease | $1,500,000 lower in total; break-even 40% |
| 2. Value falls, no tax either way | $14,000,000 | $12,000,000 | $0 | $0 | No: the tax does not decrease | None; basis stays at the death-date value |
| 3. Value rises | $17,000,000 | $18,000,000 | $800,000 | $1,200,000 | No: the estate does not decrease | None; basis stays at the death-date value |
Our arithmetic from 26 U.S.C. 2001(c), 2032 and the Instructions for Form 706 (Rev. July 2026). Case 1 break-even: $600,000 saved divided by $1,500,000 of basis given up.
The break-even in case 1 is the point: a sale of everything at the lower basis would have to be taxed at more than 40% on the extra gain for the election to cost the heirs more than it saves. Compare 40% with your own rate on a sale. For an estate under $15,000,000, like case 2, the election does not exist, so the date-of-death appraisal is the only value that matters.
Where the penalties start
The accuracy-related penalty in 26 U.S.C. 6662 works on ratios, so the table shows where each line falls for a house with a correct date-of-death value of $800,000. The lines scale with value; the CSV has the same arithmetic for $400,000, $1,200,000 and $2,000,000.
| Return | Test | Line for an $800,000 house | Penalty | Floor | Source |
|---|---|---|---|---|---|
| Income tax return of the heir, on a sale | Basis claimed is 150% or more of the correct basis | $1,200,000 | 20% of the underpayment | Underpayment over $5,000 | 26 U.S.C. 6662(b)(3), (e) |
| Income tax return of the heir, on a sale | Basis claimed is 200% or more of the correct basis | $1,600,000 | 40% of the underpayment | Same | 26 U.S.C. 6662(h) |
| Estate tax return | Value reported is 65% or less of the correct value | $520,000 | 20% of the underpayment | Underpayment over $5,000 | 26 U.S.C. 6662(g) |
| Estate tax return | Value reported is 40% or less of the correct value | $320,000 | 40% of the underpayment | Same | 26 U.S.C. 6662(h)(2)(C) |
| Heir who uses a basis above the Schedule A value | Failure to comply with section 1014(f); “inconsistent estate basis” | Any amount above the reported value, if the cap applies | 20% accuracy-related, or 40% if the basis is 200% or more of the correct amount | No dollar floor stated in the instructions | 26 U.S.C. 6662(b)(8), (k) |
Source: 26 U.S.C. 6662(e), (g), (h) and (k); Instructions for Form 8971 (Rev. August 2025), “Penalties for Inconsistent Filing,” saved on October 22, 2026. The dollar lines are our arithmetic. Section 6664(c)(1) removes the penalty on any portion shown to be due to reasonable cause and good faith.
The appraiser has exposure too. Section 6695A fines a person whose appraisal leads to one of these misstatements by the lesser of the greater of 10% of the underpayment or $1,000, and 125% of the income received for the appraisal. With a $100,000 underpayment and a $600 fee, the lesser figure is $750 (our arithmetic). The penalty does not apply if the appraised value was “more likely than not the proper value.”
Discounts for an LLC or partnership interest
If a house sits inside an LLC or partnership, the estate values the interest, not the house. The Form 706 instructions ask the executor to attach a statement of the total effective discount, and give this demonstration: $100.00 of pro-rata value, less 10% for lack of control to $90.00, less 15% for lack of marketability to $76.50, so ($100.00 minus $76.50) divided by $100.00 is 23.50%. They say the discounts in the example are “for demonstration purposes only.”
On a $1,000,000 pro-rata interest, the same percentages give $765,000, which is $235,000 less estate value (our arithmetic). Because the heir’s basis in the interest is also its value at death (section 1014(a)(1)), the discount lowers the basis by the same $235,000. A discount helps an estate near the exclusion and costs an heir who plans to sell the interest or the property. Our page on giving illiquid real estate interests during life covers the gift-side version of the same trade.
What a reader can do with this
If you are an heir and no Form 706 was filed:
- Get a retrospective appraisal or a written comparable-sales valuation with the date of death on its face, from someone with no stake in the later sale. Keep it with the closing papers for as long as you own the property; nobody else has reported a value for you.
- For a rental, ask for the property value, not the equity, and ask the appraiser to split land from building, because depreciation restarts on the building share (see our step-up page).
- For shares in a non-traded fund, ask the sponsor in writing for the value per share on the date of death.
If you are the executor of an estate near or over $15,000,000:
- Decide before the six-month date whether alternate valuation can pass the test in section 2032(c) and whether the basis you give up is worth the tax saved.
- Put the appraisal in the Form 706 file, report only the number on Schedule A, and calendar the Form 8971 date: 30 days after the return due date, or after filing if earlier. Count a death on March 15, 2026: nine months is December 15, 2026 (a Tuesday), so Form 8971 is due January 14, 2027 if the return is filed on the due date (our arithmetic).
- If a value changes, send a supplemental Schedule A within 30 days.
This is analysis of public documents, not investment, legal or tax advice.
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Sources, read and saved on October 22, 2026: Treasury Regulations 26 CFR 20.2031-1, 20.2031-2, 20.2031-3, 20.2031-6, 20.2032-1 and 1.1014-10, and 26 U.S.C. 1014, 2001, 2032, 6035, 6662, 6664 and 6695A (Legal Information Institute, Cornell Law School, reproducing the eCFR and the U.S. Code); Instructions for Form 706 (Rev. July 2026) and Instructions for Form 8971 (Rev. August 2025), irs.gov. Worked examples, penalty lines and the dates are our arithmetic, with the assumptions stated. This is analysis of public documents, not investment, legal or tax advice.
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