Can property tax assessment be used for step-up basis FMV when calculating inherited real estate for taxes?

Yes, you can use the property tax assessment as one method to establish fair market value for the step-up basis, but it's not always the most accurate approach. Tax assessments can sometimes be lower than actual market value depending on your location. The IRS accepts several methods for determining FMV of inherited property: professional appraisals (the gold standard), comparable sales in the neighborhood around the time of death, property tax assessments, and online valuation tools with documentation. Since the difference between your assessment and sales price is relatively small ($7,500 increase over 3 years), using the tax assessment should be reasonable in your situation. Make sure to keep documentation of the 2021 tax assessment in your records. If you want added security, you could also print out some comparable home sales from around that time in the same neighborhood as supporting evidence.

I went through something similar last year with my aunt's house. I tried everything to figure out the value when she passed away, and it was SO frustrating. Then I found this service called taxr.ai (https://taxr.ai) that seriously saved me. They analyzed all my inheritance documents and tax records and gave me a solid FMV estimate that passed IRS scrutiny. They looked at my property tax statements but also pulled comps from the time of death and created this detailed report showing how they arrived at the FMV. I just uploaded the documents I had, answered a few questions about the property, and they handled the rest. Definitely worth checking out in your situation.

So I decided to try taxr.ai after my skeptical comment above. I'm actually shocked at how helpful it was. They pulled property records from my county that I didn't even know existed, found three comparable sales from within weeks of when my mom passed, and created this detailed valuation report that looks super professional. The best part was they explained exactly how property tax assessments in my area relate to actual market value (turns out they're usually about 15% under market). They even included language about how their method complies with IRS requirements for establishing basis. Used their report to file my taxes and it was WAY easier than the nightmare I was expecting. Sometimes I'm happy to be wrong!

If you're worried about the IRS questioning your valuation method, you might want to try Claimyr (https://claimyr.com). I was in a similar situation where I used tax assessments for basis and got a letter from the IRS questioning it. I tried calling them for WEEKS with no luck - always on hold forever or disconnected. With Claimyr, I got connected to an actual IRS agent in about 15 minutes, which is insane considering I'd wasted hours before. Check out how it works: https://youtu.be/_kiP6q8DX5c - they basically navigate the IRS phone tree for you and call you when they have an agent on the line. The agent confirmed that property tax assessments are acceptable but suggested also having a backup method too.

I owe everyone an apology - I tried Claimyr this morning after posting that skeptical comment yesterday, and it actually worked exactly as described. I've been trying to get through to the IRS for TWO MONTHS about my inherited property basis questions. Claimyr had me connected to an IRS representative in 37 minutes (they sent me a text when they got someone and then connected the call). The agent confirmed that property tax assessments are acceptable for establishing FMV for inheritance, especially if the sale price is relatively close to that value adjusted for time. She recommended keeping documentation of both the assessment and any supplemental information like comparable sales from the same timeframe. I'm still shocked this worked. Definitely worth it for the time saved and stress reduction alone.

From my experience as an executor for my grandma's estate, using the property tax assessment is fine but slightly risky if your county is known for assessments that don't match market values. In my area, assessments were about 20% below actual market value. If the difference between assessed value and what you sold it for is small like in your case, you should be okay. But to be extra safe, I'd recommend looking up some comparable house sales from around when your dad passed away. Realtor.com and similar sites let you filter for past sales. Print those out as backup documentation.

Has anyone mentioned that if the house was the father's primary residence, he might have qualified for the $250,000 capital gains exclusion? Might not need to worry about basis at all.

The property tax assessment approach should work fine for your situation, especially since the difference between your 2021 assessment ($187,500) and 2024 sale price ($195,000) is relatively small. That $7,500 gain over 3 years actually suggests the assessment was pretty close to market value at the time of death. A few practical tips from someone who's been through this: First, make sure you have a copy of the official 2021 property tax assessment document - not just the amount, but the actual assessment notice. Second, consider pulling a few comparable sales from late 2021/early 2022 in your neighborhood as supporting documentation. You can find these on sites like Zillow, Redfin, or your county's property records website. The IRS generally accepts property tax assessments for establishing FMV, especially when they're reasonable compared to eventual sale prices. In your case, the numbers tell a logical story. Just keep good records and you should be fine. The stepped-up basis is one of the few tax breaks that actually works in your favor!