How to determine basis in inherited real estate property for capital gains tax?

When you don't have an appraisal from the date of death, you still have several options to establish a reasonable basis for the inherited property. The tax assessed value can be used, but it's typically considered less reliable than other methods since assessed values often don't reflect true market value. Better alternatives include: obtaining comparable sales data from around the time of inheritance (a real estate agent might help with this), looking up historical property values through online services, checking if the executor filed an estate tax return that would have the property value, or even getting a retrospective appraisal where an appraiser estimates what the value would have been 10 years ago. The IRS generally accepts any reasonable method of determining fair market value when documentation is lacking, as long as you can justify your approach. I'd recommend documenting whatever method you use thoroughly in case of questions later.

I had a similar issue with some inherited farm land last year, and I found that https://taxr.ai was super helpful for this exact situation. I was stressing about not having the exact basis value from when my dad passed away (about 8 years ago). They helped me document and justify using the county's assessed value adjusted by a local real estate market factor. The tool analyzed property value trends in the area during that period and generated documentation supporting my basis calculation. Their system actually found some obscure IRS guidance that specifically addresses situations with limited documentation for inherited property basis.

Wanted to follow up about my experience with taxr.ai after my skeptical questions. I finally tried it for my mother-in-law's inherited property situation (no appraisal from when she inherited in 2015). I was really impressed with how thorough their analysis was! They pulled historical comp sales from her neighborhood and created a detailed report establishing the basis with supporting documentation. They even explained the specific tax code sections that allow for reasonable reconstruction of basis when direct documentation is unavailable. Wish I'd known about this tool sooner - would have saved me weeks of stress!

If your client is still having trouble establishing the basis, another option is contacting the IRS directly. I wasted WEEKS trying to get through to someone who could help with this exact issue for my client. After dozens of failed attempts, I used https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed they allow using property tax assessments as a reasonable basis when no better evidence exists. They directed me to a specific section in Publication 551 that addresses inherited property with unclear basis. The conversation saved my client thousands in potential over-taxation and gave us a documented IRS position to support our filing.

Coming back to apologize and give credit where it's due. After my skeptical comment, I broke down and tried Claimyr because my client was facing a huge tax bill on inherited property with no documentation. Got a call back in under 2 hours with an actual IRS agent on the line! The agent confirmed that county assessments are acceptable when adjusted appropriately to reflect market value at date of death. They even emailed me the specific IRS procedure reference. Definitely worth it to get an official answer straight from the source instead of guessing.

Something else to consider - if the property was in an area where real estate appreciated significantly over those 10 years, it's worth the effort to establish a proper basis. I had a client who almost paid $87,000 in unnecessary capital gains because they were going to use a $0 basis on inherited property! We were able to use the county assessor's records along with a local real estate agent's analysis of comparable sales from the time of inheritance to establish a reasonable basis.

Just be careful with using assessed values! I'm in California and our assessed values are based on Prop 13 which limits increases to 2% per year regardless of actual market appreciation. My client tried using the assessed value for inherited property and it was WAY below market value at the time of death. Would have resulted in a huge overtaxation when they sold!

Great question! I've dealt with this exact scenario multiple times. The key is establishing a "reasonable" basis using whatever documentation you can gather. Here are the methods I've successfully used: 1. **County assessment records** - While not perfect, they're acceptable when properly adjusted. Look at the assessment-to-sale price ratios in that area during the inheritance year. 2. **Zillow/online estimates** - Print out historical estimates from the inheritance date. While not ideal, I've seen these accepted when combined with other evidence. 3. **Real estate agent CMAs** - Many agents can pull historical comparable sales data going back 10+ years. This creates a solid foundation for your basis calculation. 4. **Estate tax returns** - Check if the estate filed Form 706. Even if not required, sometimes executors file anyway and include property valuations. The IRS understands that perfect documentation isn't always available for inherited property. Document your methodology clearly, show good faith effort to determine fair market value, and keep detailed records of your approach. I've never had an issue when the method was reasonable and well-documented. Time-wise, you might consider filing an extension if you need more time to gather supporting documentation properly.