Sell Your Late Mother’s House Within a Year of Her Death and the IRS Generally Accepts the Sale Price as Its Date-of-Death Value. Wait Three Years and You Need an Appraisal Nobody Ordered, and Without One the Basis Is Whatever the IRS Says

A 61-year-old engineer’s mother died in January 2024 and left him her three-bedroom ranch. Nobody filed an estate tax return, nobody owed state inheritance tax, and nobody ordered an appraisal. He let a cousin live there for a while and listed it this fall.

It sold in October 2026 for about $433,500. His tax preparer asked one question: what was the house worth on the day his mother died? He had a guess and a county tax bill showing an assessed value of $290,000.

That assessment is now the most official-looking number in his file. It sits far below what the house was really worth.

Inherited Basis Resets to Date-of-Death Value, and the Heir Has to Prove It

Under 26 U.S.C. § 1014(a)(1), an heir’s basis is “the fair market value of the property at the date of the decedent’s death.” Treasury defines that value in 26 CFR 20.2031-1(b) as “the price at which the property would change hands between a willing buyer and a willing seller.”

Under 26 CFR 1.1014-3(a), the value on an IRS estate return counts as fair market value. When no return is required, the value assessed for state inheritance tax counts instead. Most families have neither. Only 7,195 IRS estate returns were filed in 2024.

That leaves the heir holding the burden. Under 26 CFR 1.6001-1(a), taxpayers must keep records sufficient to establish the amounts on their returns. Basis is one of those amounts. If an examiner asks for proof and the heir has none, the examiner picks a number and the heir has to disprove it.

A Sale Within a Year Doubles as the Appraisal

An arm’s-length sale to an unrelated buyer soon after death is the willing-buyer, willing-seller transaction the regulation describes. Within about a year, the market has had little time to move, so examiners generally accept the closing price as the value at death. The one-year mark is a working convention. The Code sets the standard for what property is worth and leaves the evidence to the taxpayer.

Congress uses the same logic in the alternative valuation rule. Under 26 U.S.C. § 2032(a)(1), property sold within 6 months of death is valued at its sale price. Selling soon has another advantage: under 26 U.S.C. § 1223(9), inherited property is treated as held for more than one year, so any gain gets long-term tax rates.

Three Years of Market Drift Erases the Evidence

A 2026 sale price says little about a January 2024 value. The Case-Shiller National Home Price Index rose from 310.713 in January 2024 to 336.741 in August 2026, a gain of about 8.4%. Along the way, it also fell from 331.565 in June 2025 to 326.764 in January 2026. Add renovations or tenant wear, and the later sale price stops working as proof of value at death.

Run the Numbers on the Ranch

Assume the ranch was worth $400,000 at death. If it tracked the national index, it would be worth about $433,507 by August 2026. Assume he files jointly and the gain falls in the 15% bracket under 26 U.S.C. § 1(h)(1)(C). These figures ignore selling costs and state tax.

• With a retrospective appraisal at $400,000: the gain is $33,500, and the federal tax is $5,025.
• With no appraisal, if the examiner starts from the $290,000 assessment: the gain is $143,500, and the federal tax is $21,525.

The missing paperwork costs $16,500. The regulation helps him in principle: 26 CFR 20.2031-1(b) bars using a local assessed value unless it reflects what the property would fetch on the open market. But winning that argument takes evidence, and the evidence is an appraisal.

Selling in Year One Brings the Gain to Zero

Say he had sold the ranch in November 2024 for $400,000 to a stranger. The sale price becomes the basis, the gain is zero and the closing statement serves as the appraisal. His file would have been closed before the market moved.

Heirs who want to keep the house still have an option: a licensed appraiser can produce a retrospective appraisal valued as of the time of death, even years later. It costs far less than the $16,500 it protects, and it fits inside the broader cleanup every estate eventually needs (we put the full checklist, beneficiary forms and titling included, in a free report: Die With a Plan).

Five Documents That Lock In the Basis

1. Get an appraisal pegged to the time of death within the first few months, even when no estate return is due. If you’re late, ask for a retrospective valuation.
2. When a sale happens within a year, keep the closing disclosure, the listing history and proof that the buyer is unrelated.
3. Check with the executor on whether a Form 706 was filed. If it was, the Schedule A of Form 8971 sets your starting basis, according to IRS Publication 551.
4. Save printouts of comparable sales from the three months around the time of death.
5. Keep receipts for improvements made after you inherit. They add to your basis.

A CPA can confirm how these rules apply to your own sale.

For this ranch, $16,500 is the price of an appraisal nobody ordered. An heir who sells within a year never pays it, and one who keeps the house can avoid it by ordering the appraisal now.

Contact [email protected] for any questions or corrections.