Determining fair market value (FMV) of inherited property

[lfreitas21]

What is acceptable proof for determining the FMV of inherited property? no trust, the home was transferred to me, the child, from my pops via a Transfer on Death statement so property was left to me upon his death which was 6/10/23. I am selling the home and I read that the IRS will consider the sale price/purchase price as the FMV if sold within 6 months to a year. I also got a comparative market analysis done as well just to be sure, but I just want to be sure the purchase price can be used to determine the FMV and prove there is no capital gain. 

[Bsch4477]

The selling price soon after the decedent’s death and comparative analysis are acceptable estimates of the FMV. 

[Anonymous_]

You can use a CMA (by a real estate agent or broker) for FMV, but the IRS considers the best evidence of FMV to be an appraisal by a certified real estate appraiser.

The sale within "six months" as acceptance of FMV on the date of death appears nowhere in the Code or Regulations and those propounding that notion may be conflating an estate tax valuation rule (alternate date) with the general rule.

[Opus 17]

A certified appraisal is best.

There is an argument (mentioned by the others) that the selling price is proof of fair market value.  Selling price of an asset is the definition of FMV at the time of the sale, of course, provided the sale is an arms-length transaction to an unrelated party.  The argument then is that, if the home is sold relatively close in time to the death of the previous owner, and there are no major ups or downs in your local real estate market, then the selling price can also stand in for the FMV on the date of death.  Also as mentioned, this is not actually part of the tax code or regulations.  It's a general rule of thumb.

Most taxpayers are never audited, but if you are audited, the IRS does not have to credit you with any FMV that you can't adequately prove.  I have not read any Tax Court cases or the audit manual to see what the IRS or the courts consider to be adequate proof.  A qualified appraisal is not very expensive, considering the consequences.   An appraiser can give you a retroactive appraisal based on historical trends.

[Anonymous_]

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@Opus 17 wrote:

Also as mentioned, this is not actually part of the tax code or regulations.  It's a general rule of thumb.

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Six months as being "close in time" is not a general rule of thumb. It is, as I mentioned, individuals conflating the estate tax alternate valuation date rule set forth in Section 2032(a)(2) with the general rule.

In the case of property not distributed, sold, exchanged, or otherwise disposed of, within 6 months after the decedent’s death such property shall be valued as of the date 6 months after the decedent’s death.

The foregoing is only applicable if an estate tax return is required to be filed (Form 706).

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@Opus 17 wrote:

I have not read any Tax Court cases or the audit manual to see what the IRS or the courts consider to be adequate proof. 

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Adequate proof is whatever the IRS determines in a particular case. Merely because the IRS accepted a CMA in one instance does not necessarily mean a CMA will be accepted in another. An appraisal by a certified appraiser is the prudent course of action, particularly if a substantial sum is involved.

[lfreitas21]

Thank you. I have reached out to many local real estate appraisers, and they all said they can't provide an appraisal due to the uniqueness of the home, as the land is owned by a corporation and it is only the parcel itself that is owned and the owner only owns 1/20th ownership in the land itself, and because the majority of those homes are owned by the same owners for years, there aren't any comparable sales to give a true appraisal. so our only choice was to obtain a CMA from a realtor, and use the sales price as the FMV. 

[lfreitas21]

Thank you. I have reached out to many local real estate appraisers, and they all said they can't provide an appraisal due to the uniqueness of the home, as the land is owned by a corporation and it is only the parcel itself that is owned and the owner only owns 1/20th ownership in the land itself, and because the majority of those homes are owned by the same owners for years, there aren't any comparable sales to give a true appraisal. so our only choice was to obtain a CMA from a realtor, and use the sales price as the FMV. 

[Anonymous_]

It is interesting that a realtor was somehow able to provide you with a CMA while local real estate appraisers were unable to provide an appraisal.

Regardless, the likelihood of an audit is almost certainly low, so you will probably be fine. Obviously, you should save all of the documentation connected with the transaction.