When someone who owned commercial real estate passes away, one of the first questions the estate must answer is what that property was worth on the day of death. The answer is not a formality. It sets the value reported to the IRS, it determines the new tax basis the heirs receive, and it can shape decisions that affect the estate’s tax liability for years. A date-of-death appraisal is the independent, supportable opinion of value that answers that question — and getting it right matters more than many executors expect.
Here is what a date-of-death appraisal is, why it exists, and when an estate needs one.
What a date-of-death appraisal is
A date-of-death appraisal is a valuation of property with an effective date equal to the decedent’s date of death. The appraiser determines the fair market value of the real estate as of that specific day — not the day the report is written, which may be weeks or months later. Because the effective date sits in the past, it is a form of retrospective valuation: the appraiser reconstructs the market as it existed on the date of death and forms an opinion based on what was known or knowable then.
The standard is fair market value — broadly, the price at which the property would change hands between a willing buyer and a willing seller, neither under compulsion and both reasonably informed. For commercial real estate, reaching that figure credibly means applying the appropriate approaches to value and documenting the data behind them, exactly as any defensible appraisal would.
Why the date-of-death value matters so much
Two consequences flow directly from this number.
First, estate tax reporting. When an estate is large enough to require a federal estate tax return (IRS Form 706), the date-of-death value of each asset is what gets reported. Under the One Big Beautiful Bill Act, the federal estate tax exemption is a permanent $15 million per person as of 2026, indexed for inflation — so many estates fall below the federal filing requirement. But the value still matters even when no tax is owed, which leads to the second consequence.
Second, the step-up in basis. Inherited property generally receives a new cost basis equal to its fair market value at the date of death. This “step-up” can erase decades of unrealized appreciation for the heirs: if they later sell, their taxable gain is measured from the date-of-death value, not from what the decedent originally paid. A well-supported, accurate date-of-death appraisal therefore protects the heirs from overstating a future capital gain — and from an IRS challenge if the figure looks unsupported.
When you need one
An estate should obtain a date-of-death appraisal for commercial or investment real estate in several common situations:
- A federal estate tax return is required, and the real property must be reported at its date-of-death value.
- The heirs will eventually sell, and a documented step-up basis will minimize their future capital gains and withstand scrutiny.
- The estate is being divided among multiple beneficiaries, and an objective value is needed to allocate or equalize shares fairly.
- A trust requires valuation of real property upon the grantor’s death for administration or accounting.
- The estate anticipates a dispute — among heirs, with a co-owner, or with a taxing authority — where a credible, independent value will be needed.
Even when none of these forces the issue immediately, executors often find that establishing the value early, while market evidence from the period is fresh and accessible, is far easier than reconstructing it years later under pressure.
Why an independent appraisal beats an estimate
Executors are sometimes tempted to rely on a tax-assessed value, an online estimate, or a broker’s informal opinion. For commercial property, these are poor substitutes. Assessed values often diverge sharply from market value and follow their own assessment cycles. Automated estimates do not meaningfully handle income-producing or special-purpose commercial property. And an informal opinion lacks the documentation that supports the figure if the IRS or a beneficiary questions it. An independent appraisal, developed to professional standards with a documented effective date and a clear basis, is the version that holds up.
The timing question
Because a date-of-death appraisal is retrospective, it can be prepared after the fact — there is no requirement to commission it on the date of death itself. That said, the analysis depends on market data from the period surrounding the death, so the discipline of the appraiser matters: the opinion must rest on sales, rents, and conditions as of the effective date, setting aside whatever happened in the market afterward. An experienced appraiser brackets out that hindsight and documents the period-appropriate evidence.
The bottom line
A date-of-death appraisal establishes what commercial real estate was worth on the day its owner died — the figure that drives estate tax reporting and the heirs’ step-up in basis. It is a retrospective valuation that demands the right effective date, period-appropriate data, and a documented, defensible basis. Whether or not a tax is ultimately owed, an independent appraisal protects the estate and its beneficiaries far better than an estimate ever could.
SM RE Inc. prepares date-of-death and estate valuations for commercial real estate across Southern California — independent, documented, and built to satisfy the IRS and the estate’s advisors alike. Learn more on our Estate & Gift Tax Valuations page, or contact us to discuss a matter. This article is general information, not tax or legal advice; consult the estate’s CPA or attorney on filing requirements.
Frequently asked questions
What date is used for a date-of-death appraisal?
The effective date is the decedent’s date of death. The appraiser values the property as of that specific day, reconstructing the market conditions of that period, even though the report itself is prepared later.
Is a date-of-death appraisal required if no estate tax is owed?
It is not always required for filing, but it is still strongly advisable. The date-of-death value establishes the heirs’ stepped-up basis, which determines their capital gain if they later sell — so a documented value protects them even when no estate tax is due.
Can I use the county assessed value instead?
For commercial property, that is risky. Assessed values frequently differ from fair market value and are not developed for estate purposes. An independent appraisal provides a defensible, well-documented figure that holds up with the IRS and the beneficiaries.