5 IRS Mistakes That Can Blow Up a Step-Up in Basis Valuation (And How to Avoid Them)
This Isn’t Just About Getting the Value Right. It’s About Not Getting Audited.
Most heirs — and even some tax professionals — think a “date of death” appraisal is just a formality.
You slap a value on the inherited property, claim your step-up in basis, and move on.
But if that value triggers red flags at the IRS?
You're not just amending a return.
You're explaining the entire basis calculation under audit… with penalties on the table.
We’ve seen it happen. And we know exactly where things go wrong — and how to stop it before it does.
Here Are the 5 Mistakes That Trip Up Most Step-Up Appraisals
1. Using a Real Estate Agent’s CMA Instead of a Licensed Appraisal
The IRS doesn’t accept guesswork.
CMA = Comparative Market Analysis. Not compliant. Not USPAP-standard. Not defensible.
One estate we worked on had an agent estimate of $385,000.
Our licensed appraisal? $451,000 — based on proper comps, adjustments, and market timing.
That $66,000 difference meant a much bigger step-up (and massive long-term tax savings).
2. Choosing the Wrong “Effective Date” of Value
The IRS wants the FMV on the actual date of death — not the filing date, not the estate sale closing date.
We see heirs accidentally use:
The date the will was probated
The day the house was listed
Or worse — a random estimate months later
Solution: Get a retrospective appraisal with the effective date locked in to the decedent’s death.
3. Using the Sales Price as the Step-Up Basis
Just because the home sold for $500,000 doesn’t mean that was its FMV at the time of death.
Markets shift. Interest rates move. Supply and demand change.
In one case, a property sold for $500K… but had a date-of-death FMV of $535K.
Reporting $500K left $35,000 on the table in future capital gains.
4. Failing to Document Property Condition
The IRS doesn’t just want value — it wants supporting evidence.
That means:
Interior photos (not just exterior)
Descriptions of repairs/upgrades
Commentary on deferred maintenance
Why it matters:
If the property had issues, your appraiser needs to reflect those in value — or the IRS will assume otherwise.
We've had cases where the appraised value came in lower than expected — saving the estate on taxes because the home had structural issues.
5. Waiting Too Long and Losing Records
We’ve had heirs come to us 18 months after death, asking for a valuation — with no photos, no walkthrough access, and no context.
Reconstructing FMV becomes much harder — and far riskier — when:
The property has been renovated
It’s been rented or sold
There’s no documentation from the time of death
Best practice: Order the appraisal within 30–90 days of death, even if the estate won’t file for months.
What a Proper Step-Up Appraisal Should Include
A real IRS-ready Date of Death Appraisal from REI Valuations includes:
Retrospective value as of the exact date of death
USPAP-compliant, defensible methodology
Photographic and market evidence
PDF + electronic delivery for CPA/attorney use
Optional affidavit/certification language if needed
For CPAs, Attorneys, and Heirs Who Can’t Afford a Mistake
We specialize in court-accepted, IRS-compliant, and timely date of death appraisals across Georgia.
Includes full licensed appraisal report
Bonus: Property profile PDF to share with your tax preparer
Priority 72-hour delivery available
Only 3 open appraisal slots left this week
January 4 2026