What estate value means for inheritance tax

Estate value is the total worth of everything a person owned at death — real estate, bank accounts, investments, vehicles, jewelry, and personal property. The tax you owe depends on whether that total crosses a threshold set by federal law or your state. Below the threshold, no federal tax is due. Above it, the executor or administrator must report the estate and calculate tax on the amount over the limit.

The value used for tax purposes is fair market value — what a willing buyer would pay a willing seller on the open market, not what the person paid for it years ago or what they thought it was worth. This matters because a house bought for $150,000 in 1995 might be worth $450,000 at death, and the $450,000 figure is what counts.

You do not calculate this value yourself and send it to the IRS. The executor hires an appraiser or uses comparable sales data to document what each major asset was worth on the date of death. That documentation goes into the estate tax return if one is required, or stays in the estate file if no return is due.

Key Takeaways

  • Estate value includes everything owned at death — real property, bank accounts, retirement accounts, life insurance, and personal items — valued at fair market value on the date of death.
  • The federal threshold for 2024 is $13.61 million per person; estates below that owe no federal tax, though some states have lower thresholds.
  • Real estate is usually appraised by a professional; bank and investment accounts are valued using statements from the date of death.
  • The executor or administrator is responsible for gathering valuations and filing a tax return only if the estate exceeds the threshold for your state or the federal level.
  • Undervaluing assets to reduce tax is fraud; overvaluing them wastes money on unnecessary appraisals and may trigger IRS review.

What counts as part of the estate

The estate includes obvious assets like a house, car, and bank accounts. It also includes retirement accounts (401k, IRA), life insurance proceeds if the deceased owned the policy, investment accounts, and any property held in joint names where the deceased had an ownership stake.

Personal property — furniture, art, jewelry, collections, tools — counts too. Most of it has little value and is listed as a lump sum. Items of known value (a painting, a watch, a collection of coins) should be appraised separately if the total estate is close to the tax threshold.

Debts owed by the deceased — a mortgage, car loan, credit card balances, medical bills — reduce the taxable estate. The executor pays these from estate funds before distributing what remains to heirs. This is why owing $200,000 on a $400,000 house means the house contributes $200,000 to the taxable estate, not $400,000.

How to value real estate

Real estate is usually the largest asset in an estate. The standard method is a professional appraisal by a licensed appraiser who inspects the property, compares it to recent sales of similar homes in the area, and produces a written report with a fair market value figure. This appraisal is dated to the date of death and becomes the official value for tax purposes.

An appraisal costs $300 to $800 depending on the property type and location. If the estate is small and the house value is clear — for example, a $180,000 home in an area with many recent comparable sales — the executor may use a broker's opinion of value or recent tax assessment instead. The IRS accepts these if they are reasonable and documented.

If the property is unusual — a farm, a commercial building, a house with major damage — a more specialized appraisal may be needed. A farm appraiser values agricultural land differently than a residential appraiser. These specialized appraisals cost more but are necessary to defend the value if the IRS questions it.

Valuing bank accounts, investments, and retirement funds

Bank accounts and money market accounts are valued using the statement balance on the date of death. If the person died on a Tuesday, you use the Tuesday balance, not the balance from Friday of that week. This is straightforward and requires no appraisal.

Investment accounts — stocks, bonds, mutual funds — are valued at the closing price on the date of death. If the market was closed that day (a weekend or holiday), use the closing price from the last trading day before death. The brokerage statement from that date shows the value; you do not need to calculate it yourself.

Retirement accounts (401k, traditional IRA, Roth IRA) are valued at the account balance on the date of death, shown on the most recent statement or a statement requested from the custodian. The full balance counts as part of the taxable estate, even though the beneficiary will owe income tax on withdrawals later. This is a common source of confusion: the same money is taxed twice — once as part of the estate, and again as income when the heir withdraws it.

Life insurance and other death benefits

Life insurance proceeds are included in the taxable estate if the deceased owned the policy at death. Ownership means the deceased had the right to change the beneficiary, borrow against the policy, or cancel it. The value is the full death benefit, not the premiums paid.

If the deceased did not own the policy — for example, if their employer owned a group policy and named the estate as beneficiary — the proceeds may not be part of the taxable estate. The distinction matters and should be checked with the insurance company and the estate's tax preparer.

Other death benefits — a pension survivor benefit, a union death benefit, a military survivor benefit — are valued at the present value of all payments the beneficiary will receive. This requires calculation by an actuary or the benefit administrator and is less common than life insurance.

Federal and state tax thresholds

The federal estate tax threshold for 2024 is $13.61 million per person. An estate worth less than this owes no federal tax. An estate worth more than this owes tax on the amount above the threshold.

The threshold changes each year based on inflation. It was lower in past years and will be lower again in 2026 unless Congress acts. If you are reading this in a different year, check the IRS website for the current threshold.

Many states have their own estate tax with a lower threshold. New York's threshold is $6.94 million. Massachusetts, Oregon, and Washington have thresholds between $1 million and $4 million. Some states have no estate tax at all. If the deceased lived in a state with an estate tax, the executor must file a state return even if no federal return is due.

When you need a professional appraiser

You need a professional appraiser for real estate in almost all cases. The cost is small compared to the tax at stake, and the appraisal protects the estate if the IRS questions the value later.

You may need an appraiser for valuable personal property — art, antiques, jewelry, collections — if the total estate is close to the tax threshold or if the items are unusual enough that their value is not obvious from comparable sales. A collection of 200 vinyl records is probably worth $500 to $2,000 total; a signed first edition of a rare book might be worth $10,000 or more. If you are unsure, get an appraisal.

You do not need an appraiser for bank accounts, investment accounts, or retirement accounts. The custodian's statement is the official value. You also do not need one for a car unless it is a classic or specialty vehicle; the Kelley Blue Book value for the make, model, and condition is acceptable.

Common mistakes in estate valuation

The biggest mistake is using the wrong date. The value that matters is the fair market value on the date of death, not the date the estate is settled (which may be months or years later). If a house was worth $400,000 on the date of death but is worth $450,000 when the estate closes, the $400,000 figure is correct for tax purposes.

Another mistake is confusing the stepped-up basis with the taxable estate. When someone inherits property, the heir's cost basis for future capital gains tax is stepped up to the fair market value on the date of death. This is a benefit to the heir but does not change the estate's taxable value. A house worth $400,000 at death is still $400,000 for estate tax, even though the heir's basis is now $400,000 instead of the $150,000 the deceased paid for it.

Undervaluing assets to reduce tax is fraud. Overvaluing them wastes money on unnecessary appraisals and may trigger IRS scrutiny. The goal is accurate valuation — neither inflated nor deflated.

Frequently Asked Questions

Do I have to file an estate tax return if the estate is below the threshold?

No federal return is required if the estate is below the federal threshold. However, some states require a return even for smaller estates, and some require a return to claim a state tax exemption. Check your state's rules or ask the estate's tax preparer. If there is any doubt, filing is safer than not filing.

What if the house was owned jointly with someone else?

Only the deceased's share of the house counts in the taxable estate. If two people owned a house as joint tenants with right of survivorship, the surviving owner automatically owns the whole house, and only half the fair market value (the deceased's share) is included in the estate. If they owned it as tenants in common, the deceased's percentage share is included. The deed or title shows which type of ownership applies.

Can I use the property tax assessment instead of hiring an appraiser?

Sometimes. If the property tax assessment is recent and reasonable, the IRS may accept it. However, tax assessments are often lower than fair market value because they are used to calculate property tax, not to reflect what the property would sell for. A professional appraisal is safer and is usually required if the estate is large or if the IRS is likely to review the return.

Does the value of the estate change if the heir sells the property later?

No. The estate's taxable value is fixed on the date of death. If the heir sells the house for more or less than that value later, the difference is a capital gain or loss for the heir's income tax, not a change to the estate's value. This is why the stepped-up basis matters: the heir's cost basis is the date-of-death value, so gains or losses are measured from that point forward.

What if I disagree with the appraiser's value?

You can hire a second appraiser for a second opinion. If the two appraisals differ significantly, you may use the average or choose the one you believe is more accurate. If the IRS challenges the value on audit, you can present both appraisals as evidence. Keep all appraisals and the reasoning behind your choice in the estate file.