What is my cost basis for inherited real estate that I sold in 2025. Is it the FMV on date of death? Or the discounted, minority interest from the estate tax return?

[pcostoff]

Property was appraised at $67,500. My father owned 40%. My sister and I split that. My interest in the $67,500 was then 20% or $13,500. My father's estate tax return claimed a minority interest discount value of $14,650. Is my cost basis 20% of the $67,500? Or is my cost basis 50% of the $14,650?

[Hi Palms]

The basis of property inherited from a decedent is generally one of the following.

1. The FMV of the property at the date of the individual's death.

2. The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. For information on the alternate valuation date, see the Instructions for Form 706.

3. The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. This method is discussed later.

4. The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. For information on a qualified conservation easement, see the Instructions for Form 706.

The valuation on the 706 is your basis because that is the real FMV since the valuation discount takes the Lack of Control and the Lack of Marketability into consideration.....and those are both factors in the FMV calc anyway. Also you could run into problems if you don't use the figure from the 706 - the IRS checks closely.

[pcostoff]

Thank you for the response. This is the clarity I was seeking.