AN APPRAISAL IS NEEDED UPON DEATH OF A PROPERTY OWNER.  A routine part of trust administration or probate administration is to obtain an appraisal of each property owned.  This is for income tax reasons.  Because the income tax basis is increased “stepped up” upon death to fair market value an appraisal is needed to prove the exact date of death value.  A licensed appraiser is needed to do this.  A realtor’s letter of value opinion is not sufficient.  There are licensed residential appraisers and licensed commercial property appraisers.  Aside from tax purposes, an appraisal is also useful to determine actual value to help to deciding what to do with a property.

INCOME TAX “BASIS” CONCEPT. Under our system of federal and state income tax, if the property is sold before death for more than what was pay for it then there is a capital gain. There are special rates which apply to capital gains depending  upon one’s tax bracket. To compute capital gains, you subtract the income tax basis of the property from the net selling price. The income tax “basis” is what was paid for the property in the first place minus any depreciation and adding any expenditures for capital improvements.

DEATH AFFECTS THE BASIS. The basis of property acquired from a deceased person’s probate estate or trust is generally it’s “fair market value” on the date of the decedent’s death. Thus, the children who inherit a property from their parents through a trust or through a probate proceeding will have a date of death income tax basis. This is known as the step-up in basis at death. An appraisal is necessary to legally prove the date of death value.

TRUST AND PROBATE ADMINISTRATION-Usually an appraisal is a normal and required part of administration.

STEP-UP TAX EXAMPLE.  Suppose a house was purchased for $200,000 and was sold for $500,000 before the death of the owner.   There would be taxable capital gains.  The gain would be the $500,000 sale price minus the basis of $200,000 which equates to $300,000 gain.  If this house was the primary residence of the seller you would subtract $250,000 for the gain exclusion and end up with a taxable gain of $50,000.

If, on the other hand, the house was still owned at death, the basis would step up to its $500,000 market value.  Then, after death, the heirs could sell the house for $500,000 and not have any taxable capital gains.


BASIS FOR A SURVIVING JOINT OWNER. Supposing property is owned as joint tenants, which means that the survivor gets 100% ownership in the property on the death of the other owner.  In that situation, the income tax basis for the deceased’s portion of the property gets stepped up to fair market value as of the date of the deceased person’s death. The portion receiving the stepped-up basis is allocated depending upon the amount of money put in to the purchase by each joint tenant.


Supposing the property is owned by a husband and wife either as joint tenants or as community property. Under California law, even if the title is held in joint tenancy, there is a presumption that the property is community property which means that the property is considered owned 50/50 by husband and wife.  What happens to the income tax basis when the husband dies and is survived by the wife? Under a special rule for community property, the steppedup basis at death is available not only for the decedent’s one-half of community property, which is included in the decedent’s gross estate, but also for the surviving spouse’s half, which is not.  Fortunately, California is a community property state.  Thus, in the example above where a house was purchased for $50,000 and if it is worth $500,000 on the death of one spouse, the income tax basis of the entire property increases to $500,000.  Thus, the surviving spouse may sell the house for $500,000 and not have any capital gains tax to pay