Is property tax assessment valid for determining Fair Market Value (FMV) for step-up basis on inherited real estate?

You're on the right track! The IRS allows multiple methods for establishing FMV of inherited property when you don't have a formal appraisal. A property tax assessment can definitely be one acceptable method, though it's not always the most accurate. Keep in mind that property tax assessments can sometimes be lower than actual market value in many counties, while in others they might be close to accurate. The IRS mainly wants to see that you made a good faith effort to determine a reasonable value. Other methods you could consider: looking at comparable home sales in the neighborhood around your father's date of death, getting a retroactive appraisal (yes, appraisers can do this), or using online valuation tools with historical data like Zillow or Redfin to see estimated values from 2021.

I went through something similar last year with my aunt's property and discovered taxr.ai (https://taxr.ai) which saved me so much stress! I uploaded the tax assessment documents and some comparable home sales data from when she passed, and their system analyzed everything to help establish a defensible FMV for the step-up basis. It even flagged that in my county, assessments were typically 15% below market value, which helped me adjust my calculations. The detailed report they generated gave me everything I needed to properly document the basis value for my tax filing.

I was really skeptical about using online tools for something as important as establishing FMV for inherited property, but after struggling with this exact issue, I gave taxr.ai a try. Honestly, it was incredibly helpful for my situation. Their system analyzed the county assessment values and showed me specific comparable sales from when my relative passed away. The report they generated explained exactly why my basis valuation would hold up under IRS scrutiny and included all the supporting documentation I needed. It even identified a special assessment rule in my county that affected the valuation. I'm actually surprised how thorough it was!

After my father passed last year, I spent WEEKS trying to get through to someone at the IRS who could tell me definitively whether the tax assessment would work for establishing FMV. Endless busy signals and disconnections. Then I found Claimyr (https://claimyr.com) and watched their demo video (https://youtu.be/_kiP6q8DX5c) - they got me connected to an actual IRS representative in under an hour! The IRS agent confirmed that county tax assessments can be used as one method of establishing FMV, but suggested documenting additional evidence like comparable home sales from the time period. Having that conversation saved me so much uncertainty and gave me clear direction on exactly what documentation would protect me in case of questions later.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was so frustrated with not getting IRS answers about my inherited property basis that I tried it anyway. Within 40 minutes I was talking to an actual IRS agent who went through the specific options for establishing FMV on inherited property. The agent explained that while tax assessments can be used, they also recommended looking at comparable sales and documenting why I believe the assessment reflects actual market value. They even emailed me links to the specific IRS publications about inheritance basis. Getting concrete answers directly from the IRS gave me so much peace of mind for handling my situation!

Just wanted to add that in my county, the tax assessments are typically about 80% of actual market value. You might want to check if your county has an "assessment ratio" they use. Some places assess at 100% of market value while others use a percentage. If your county uses a ratio, you might need to adjust the assessment value to get the true FMV. For example, if assessments are done at 80% of market value and the assessment was $235,000, the implied market value would be $293,750.

Has anyone considered using the sale price of $243,000 and then working backward to estimate what the value might have been in 2021? You could look at home price appreciation rates in your specific area over that period. For example, if homes in your area appreciated about 10% between 2021-2024, you could estimate the 2021 value at around $221,000. Just another approach to consider if the tax assessment seems questionable.

I dealt with this exact situation when my grandmother passed in 2020. We also didn't get an appraisal at the time and had to use the county tax assessment for our step-up basis. The key thing I learned is that you need to document WHY you believe the assessment represents fair market value. In your case, since the assessment was $235,000 and you sold for $243,000 about 3 years later, that actually seems pretty reasonable given normal market appreciation. I'd suggest creating a simple documentation package that includes: the official county assessment from 2021, any comparable sales you can find from that time period (even if it's just from online sources like Zillow), and a brief explanation of why you believe this represents fair market value. The IRS is generally reasonable about this as long as you can show you made a good faith effort to determine accurate value. One tip: if your county publishes their assessment methodology or ratio (like Monique mentioned), include that documentation too. It shows you understood how assessments work in your area.

I'm dealing with a very similar situation right now with my dad's property that we inherited in 2022. Based on what I've researched and discussed with my tax preparer, using the county assessment is definitely one of the accepted methods for establishing FMV. What really helped me was creating what my preparer called a "valuation support file" - basically documenting multiple data points that all supported a similar value range. I included the county assessment, but also pulled historical Zillow estimates from around the date of death, looked up a few comparable sales in the neighborhood from that time period, and even found some listings that were similar to the property. The good news for you is that your assessment of $235,000 and sale price of $243,000 three years later actually shows the assessment was pretty accurate. That's exactly the kind of reasonableness the IRS looks for. One thing I learned: keep copies of everything you use to support your valuation, even if it's just printouts from real estate websites. The IRS wants to see that you made a good faith effort to determine accurate value, not necessarily that you hired a $500 appraiser.

Based on your situation, using the county tax assessment of $235,000 as your step-up basis should be perfectly acceptable to the IRS. The fact that you sold for $243,000 three years later actually supports that the assessment was reasonably accurate - that's only about a 3.4% appreciation over three years, which is quite reasonable given normal market conditions. The IRS doesn't require a formal appraisal for inherited property; they just want to see that you made a good faith effort to determine fair market value at the date of death. County tax assessments are specifically mentioned in IRS publications as one acceptable method. To strengthen your documentation, I'd recommend keeping a simple file with: the official county assessment from 2021, any information about your county's assessment practices (whether they assess at full market value or use a percentage), and maybe a few comparable sales from that time period if you can easily find them online. Since your numbers are so reasonable and close together, I wouldn't worry too much about this triggering any red flags. The IRS is mainly looking for obvious discrepancies or situations where someone clearly undervalued property to avoid taxes.

I'm in a very similar boat with my mother's property that we inherited in 2023. Reading through all these responses has been incredibly helpful! One thing I want to add from my experience is that it's worth checking if your state has any specific rules about using tax assessments for inheritance purposes. In my state, I discovered that the county assessor's office actually keeps records of their "market value estimates" separate from the assessed value used for taxes. When I called them, they were able to provide me with both numbers from 2023, and the market value estimate was about 8% higher than the tax assessment. This gave me a more defensible FMV number that was still based on official county records. Also, since you mentioned this is for three siblings, make sure you're all using the same basis calculation method for consistency. The IRS would definitely notice if siblings reported different stepped-up basis amounts for the same inherited property! Your situation with the assessment at $235K and sale at $243K after three years actually looks very reasonable. That level of appreciation is totally normal and shouldn't raise any eyebrows.