Valuing Property for Federal Estate Tax Purposes

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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It is not what you paid for it.

As a general rule, every asset you own in your gross estate is valued at its fair market value, meaning the highest price at which both a hypothetical willing seller and a willing buyer would agree on. Your personal representative can choose the valuation date: the decedent’s date of death or the value six months later (known as the alternate valuation date). The alternative valuation date election is allowed only if lowers your tax liability (e.g., produces a tax advantage). Whatever date is selected, it is irrevocable and will apply to all assets in the estate. If the 6-months-after-date death applies, all your assets must be valued on that date. Furthermore, if property is sold, distributed, exchanged, or disposed of during the 6-month period, it is valued on the date of the distribution, sale, etc., rather than the alternative valuation date.

Beware of understating the value for two reasons:

(1) there is a substantial penalty if the property listed on Form 706 is 65% or less than the amount determined to be correct. The penalty is 20% of the underpayment.

(2) the fair market value used on the 706 form is the beneficiary’s income tax basis for determining gain or loss when the asset is later sold or the limit on cost recovery through depreciation.

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