[
    {
        "role": "user",
        "content": "when%20a%20home%20is%20inherited%20and%20the%20step-up%20in%20basis%20is%20allowed%2C%20how%20should%20we%20document%20the%20value%20at%20the%20time%20of%20inheritance%3F"
    },
    {
        "role": "assistant",
        "content": "When a home is inherited, and the step-up in basis is allowed, it's crucial to properly document the home\u2019s value on the date of the decedent\u2019s death. This value becomes your cost basis for tax purposes, which affects capital gains when you later sell the home. Here's what you need to know and how to document it effectively:\n\n---\n\n## What the Tax Law Says\n\n- The basis of property you inherit is generally its **Fair Market Value (FMV)** as of the date of the decedent\u2019s death. ([irs.gov](https://www.irs.gov/publications/p559/index.html?utm_source=openai))  \n- Alternatively, if the executor files a federal estate tax return (Form 706), they can elect an **alternate valuation date**, which is six months after death. That value may be used instead. ([irs.gov](https://www.irs.gov/publications/p559/index.html?utm_source=openai))  \n- If there\u2019s an estate tax filed, the value reported on that return (for the property) can be your basis. If not, the appraised value at the date of death (or alternate date, if elected) is what you use. ([irs.gov](https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances?utm_source=openai))  \n\n---\n\n## Key Documents to Gather and Keep\n\nTo substantiate the value (basis) at the time of death, you should assemble the following records. These can become critically important in case of audits or when selling the property.\n\n| Document | Why It\u2019s Useful |\n|---|---|\n| **Certified death certificate** | Establishes the date of death\u2014the basis date. |\n| **Appraisal of the property** done by a qualified appraiser dated near the date of death | Professional appraisals are a strong form of evidence for FMV. ([vaultis.com](https://vaultis.com/knowledge-center/step-up-in-basis-inherited-assets?utm_source=openai)) |\n| **Estate tax return (Form 706)**, if filed | It will include values of estate assets, including real estate. These values are official and carry deference. ([irs.gov](https://www.irs.gov/publications/p559/index.html?utm_source=openai)) |\n| **Schedule A of Form 8971**, if the estate was required to file and issue this to beneficiaries | Used to report to beneficiaries the basis values; provides consistency between estate tax reporting and beneficiary records. ([irs.gov](https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances?utm_source=openai)) |\n| **Probate court inventory or estate inventory records** | These often list estate assets and their valuations, which can help support your FMV claim. ([settledestate.com](https://settledestate.com/ohio/step-up-in-basis/?utm_source=openai)) |\n| **Comparables / market data at date of death** if appraisal isn\u2019t available | Sales of similar properties nearby around the date of death help establish reasonable FMV. ([vaultis.com](https://vaultis.com/knowledge-center/step-up-in-basis-inherited-assets?utm_source=openai)) |\n\n---\n\n## Other Useful Records for Adjusted Basis\n\nOnce you establish the stepped-up basis, your ultimate adjusted basis (important if you sell) may include or exclude certain things. To handle these calculations accurately, keep:\n\n- Records of **capital improvements** you make after inheriting the home (which increase basis) \u2014 e.g. receipts, invoices. ([settledestate.com](https://settledestate.com/ohio/step-up-in-basis/?utm_source=openai))  \n- Depreciation schedules (if you convert the property to rental or business use) \u2014 needed if recounting depreciation when calculating basis. ([bluej.com](https://www.bluej.com/ca/answer/for-rental-properties-inherited-through-an-estate-what-documentation-is-required-to-establish-the-depreciation-basis-on-form-4562?utm_source=openai))  \n- Documents of **ownership transfer** (probate, deed changes) to show when you acquired the property. ([bluej.com](https://www.bluej.com/ca/answer/for-rental-properties-inherited-through-an-estate-what-documentation-is-required-to-establish-the-depreciation-basis-on-form-4562?utm_source=openai))  \n\n---\n\n## How Long to Keep These Records\n\n- At minimum, **keep records for at least three years** after the tax return on which you report the sale. This is standard for the IRS statute of limitations. ([settledestate.com](https://settledestate.com/ohio/step-up-in-basis/?utm_source=openai))  \n- But many experts recommend keeping them **permanently** \u2014 especially appraisal reports and estate valuation documents \u2014 since they may be needed many years later. ([find-cpa.com](https://find-cpa.com/articles/step-up-in-basis-explained?utm_source=openai))  \n\n---\n\n## What If You Lack Some Records?\n\n- If you don\u2019t have a professional appraisal, using **comparable property sales** around the date of death is better than nothing. But these are weaker evidentiary support compared to appraisals. ([suttlecpas.com](https://www.suttlecpas.com/insights/understanding-the-step-up-in-basis-when-inheriting-assets/?utm_source=openai))  \n- If the property was listed on an estate return, or in probate filings, those values carry more weight.  \n- In some cases, state or local inheritance or transmission tax filings include as appraisals or estimates. Those can also help. ([irs.gov](https://www.irs.gov/publications/p530?utm_source=openai))  \n\n---\n\nIf you want, I can pull together a checklist tailored for your state, since appraisal norms and probate rules differ a lot depending on where you are."
    }
]