Step Up Basis for Inherited House

[syoung123]

Hello, my wife and her sister inherited their mother's house in 2019.  They did not do an appraisal at the time of their mother's death.  They sold the house in 2024.  I am trying to figure out the step up basis, or the fair market value, of the inherited house on the date of their mother's death.  The house is in Michigan, where the county shows taxable value and assessed value for houses in the county records.  I think the assessed value normally is supposed to be 1/2 of the market value per the county's assessment, but the county's assessment usually lags behind the real market value.  I was able to search Zillow and found the market value of the house for the month in which their mother passed away in 2019 per Zillow's assessment.  Can I use what Zillow showed as step up basis?  Or are there other methods/options that you can recommend?  Thank you.

[M-MTax]

Or are there other methods/options that you can recommend?

Yes. A date of death appraisal by a certified real estate appraiser is the only appraisal the IRS is obligated to accept. You may, however, get away with something less authoritative but be advised that the IRS can challenge that.

[DavidD66 · Accepted solution]

I would say that Zillow is a good starting point.  You need to very that the information in Zillow regarding the home is correct (e.g. square footage, number of bedrooms/bathrooms).  I would also look at sales of comparable properties around the same time.  Sales information should be available online from the county tax appraiser or tax commissioner's office.

[syoung123]

Thank you.  They asked the sales agent that listed the house for an appraiser who could do an appraisal dated back to 2019, and the agent was not able to find one.  The Zillow info on the property description such as rooms and sq. footage is correct.  I'll see if I can find comparable home sales around that time.

[M-MTax]

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@syoung123 wrote:

The Zillow info on the property description such as rooms and sq. footage is correct.  I'll see if I can find comparable home sales around that time.

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Just so you're aware that the IRS is obligated to accept neither. They can argue against any type of valuation other than an appraisal by a licensed real estate appraiser.

Also be advised that more than a 25% basis overstatement can cause an extension of the length of time the IRS has to audit the return by three years.

https://www.americanbar.org/groups/business_law/resources/business-law-today/2017-august/irs-can-aud...

Six Years for Basis Overstatements. The IRS has argued in court that other items on your tax return that have the effect of more than a 25-percent understatement of gross income give it an extra three years.

[syoung123]

Thank you.  We talked to the listing agent and she couldn't find an appraiser that would do an appraisal dated back 5 years ago.

[M-MTax]

Understood, but you might want to look for one yourself. I can't imagine anywhere in Michigan where a licensed real estate appraiser would be more than a short-medium drive away from the property.

https://aca-prod.accela.com/MILARA/GeneralProperty/PropertyLookUp.aspx?isLicensee=Y&TabName=APO

Your choice.

[DianeW777]

As indicated by @DavidD66, you can find similar property sales at the courthouse for your county or city.  Someone there can help you find some comparable sales on the date of death of your wife's mother. In the end, you could make an educated guess based on historical records.  The IRS will accept a reasonable method for arriving at your value on the date of death if it is reasonable.

@syoung123 

[M-MTax]

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@DianeW777 wrote:

The IRS will accept a reasonable method for arriving at your value on the date of death if it is reasonable.

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That is beside the point as the only method the IRS is required to accept is a date of death appraisal by a licensed real estate appraiser. Anything less can be challenged.

I am only urging caution.

[syoung123]

Thank you all for your input.