When you inherit real estate, one of the most important — and often overlooked — steps is determining the property’s value. Get this right, and you can significantly reduce the taxes owed when you eventually sell. Get it wrong, and you may end up with a larger tax bill than necessary.

Let’s break down how to handle this the right way.

Why the Property’s Value Matters

When someone passes away, the tax basis of their property resets to its fair market value at the date of death. This process is called a “step-up in basis.” As the person inheriting the property, that number becomes your new cost basis.

The higher the basis, the less taxable gain you’ll recognize when you sell the property later. That’s why it’s so important to establish an accurate — and ideally higher — valuation upfront.

The Mistake Most People Make

A common mistake is using the county assessor’s value. Many heirs think: “We’ll pick the lowest number so it looks better for taxes.”

But that’s exactly the opposite of what you want to do. A lower valuation today means you’ll pay more in capital gains taxes later when you sell, because the appreciation will look larger than it really is.

The Smarter Approach: Get a Professional Opinion

Instead of relying on the county assessor, take these steps:

• Contact a real estate agent. Ask them for a written opinion of value (sometimes called a comparative market analysis).

• Use fair market value. This number is usually higher than the county’s assessed value and more accurately reflects what the property is worth in the real world.

• Keep documentation. Hold on to the agent’s letter of opinion. When you eventually sell, you’ll only be taxed on the appreciation above that documented value.

This simple step can save you and your family thousands in unnecessary taxes.

Final Thoughts

Valuing inherited property correctly isn’t complicated, but it’s critical. Avoid the temptation to default to the county assessor’s lowball number. Instead, get a professional valuation, document it, and protect yourself from an inflated tax bill down the road.

Estate planning and inheritance come with enough complexities — don’t let a simple valuation mistake cost you more than it should.