A client inherits her father’s house in Wash Park, holds it for a year while the estate settles, then sells it. A few weeks after closing, a 1099-S shows up reporting the gross proceeds to the IRS. Now the return has to account for the sale, and the entire tax question comes down to one number. What was the house worth the day her father died?
That number is the stepped-up basis. Set it correctly and the heir often owes little or no capital gains tax. Guess at it, and either the client overpays or the return rests on a figure that invites a problem if anyone ever looks closely. This post is about how that basis gets established, why a Zillow estimate or the county assessor’s value will not hold up, and what a defensible appraisal does for you and your client.
What stepped-up basis actually means
When someone inherits property, the tax code does something generous. Under Section 1014, the basis of inherited property is reset, or stepped up, to its fair market value as of the date of death. The original owner’s purchase price stops mattering. If the father bought the house in 1985 for a fraction of today’s value, that low original cost disappears. The new basis is what the home was worth the day he passed.
This matters because capital gains tax is charged on the difference between the sale price and the basis. When the basis is the date-of-death value and the home sells a few months or a year later, the gain is usually small, sometimes nothing, because the market has not moved much in that window. The step-up is what spares most heirs a large tax bill on a home that quietly appreciated for decades. There is also an alternate valuation date the estate can elect, six months after death, but for most estates the date of death is the figure that governs.
The catch is that the step-up is only as solid as the number behind it. Fair market value as of a specific past date is not self-evident. Someone has to establish it, and that is where the appraisal comes in.
When the 1099-S arrives and the basis is a guess
Here is the situation I get called about. The home has already sold. The title company filed a 1099-S reporting the gross proceeds, so the IRS knows the sale happened and knows the dollar amount. The heir has to report it, and the gain is sale price minus basis minus selling costs. Everyone is hunting for the basis number, and nobody documented the value at the date of death because, at the time, selling was not yet on the table.
So the search begins. Someone pulls up the old Zillow estimate. Someone else digs out the county assessor’s value for that year. A family member remembers what the neighbor’s place sold for. These become the candidates for a figure that is going to drive a real tax liability, and not one of them was built for that purpose.
This is more common than it should be. Estates settle slowly, and the decision to sell often comes a year or two after the death. By the time the CPA is staring at the 1099-S, the date of death is well in the past, and the value has to be reconstructed.
Why a Zestimate or the assessor’s value will not hold up
An automated estimate and an assessor’s value both feel like data, but neither is an appraisal, and neither is anchored to the date you actually need.
An automated valuation model has never been inside the house. It does not know the kitchen had not been touched in decades, or that the roof was at the end of its life. It pattern-matches against public records and recent sales. For a home in average condition it might land close. For the older, lived-in homes that fill estate files, it can be well off in either direction, and it cannot give you the value as of a specific day two years ago. It shows today’s guess, not that day’s value.
The county assessor’s value has a different problem. It is built for property taxation, assessed on a mass cycle that can lag the market by a year or more, and in Colorado it keys to a statutory appraisal date that will rarely match a given decedent’s date of death. It is a number produced for an entirely different system.
A retrospective appraisal solves the actual problem. It establishes fair market value as of the date of death, using comparable sales from that period, verified through county records, with the condition of the home as it was then accounted for honestly. The effective date is the date of death. The analysis is the same disciplined work as any credible valuation, aimed at the day that matters for the basis.
Why a qualified appraisal matters more here, not less
When the basis on a return is supported by a credentialed appraiser’s report, it is a defensible position. When it is supported by a screenshot of an old online estimate, it is a guess that happens to be written down. If the IRS ever questions the gain, that difference is the whole ballgame.
A retrospective date-of-death appraisal from a qualified appraiser gives you a report that shows its work: the comparable sales, the adjustments, the reasoning, and the effective date, all developed under the Uniform Standards of Professional Appraisal Practice (USPAP). It carries the appraiser’s credentials and signature. It is the kind of documentation that answers the question instead of inviting more of them.
This is the work I built VolkHaus around. The SRA designation from the Appraisal Institute, twenty-four years of residential experience across Colorado, and reports thorough enough to stand on their own are exactly what a basis question calls for. When the value behind a step-up has to hold up years after the fact, the credibility of the person who set it is part of what you are buying.
What I need from you to set the basis
If you have a client with a 1099-S and a soft basis, the work goes faster if you can send a few things up front.
The property address and the date of death, which together fix the effective date. Whatever you know about the home’s condition around that time, since photos, a prior listing, an old inspection, or even the family’s description all help reconstruct how it actually showed then. Any prior appraisal, listing history, or sale records already in the file. And a note on the intended use, whether this supports an income tax basis on the sale, a late-filed estate return, or both, since that shapes how the report is framed and who the intended users are.
From there I can confirm the fee and the timeline. Most of these are straightforward retrospective assignments with a predictable turnaround, which matters when there is a filing deadline in play.
The bottom line for CPAs and fiduciaries
The 1099-S is going to report the proceeds whether or not anyone has done the work to establish the basis. The only real question is whether your client’s gain rests on a defensible value or a convenient one. A retrospective appraisal turns the basis from a guess into a supported number, and it does that for a fee that is small next to the tax exposure on a Denver-area home.
If you have an inherited sale where the basis is soft, or a return you would rather not file on the strength of a Zillow screenshot, send me the property address and the date of death. I will tell you what is realistic and what it takes to support it.
About the author
Charles E. Volk, SRA, is the principal of VolkHaus Appraisals in Denver, Colorado. He holds the SRA designation from the Appraisal Institute, has 24 years of residential appraisal experience across Colorado and the western United States, and serves on the Board of the Colorado Chapter of the Appraisal Institute. He works with estate attorneys, CPAs, fiduciaries, community banks, and private clients throughout Denver Metro and Boulder County.