The fair market value on a date of death is what the property would have sold for on the date of death. Period.
There has never been an official rule or policy about getting an appraisal or selling the house within a specified time period. We have said before that as a rule of thumb, if you are in a stable real estate market and you sell the home within a reasonably short period of time after the person’s death, the IRS is likely to allow you to use the selling price as the fair market value. But this has never been an official rule, and the real estate market lately is most definitely not stable.
If a reasonable fair market value at the time of death was $220,000, then you could have sold the home for $220,000 and not realized any taxable gain, and I’m sure the buyer would’ve been overjoyed to get a bargain. If you made an unexpected profit because the real estate market is hyperactive, then you will pay income tax on that unexpected profit, but you are still going to come out thousands of dollars ahead of where you would have been had you sold the home for $220,000.
