IRS Step-Up Appraisal NYC | Date of Death Appraisal Guide

IRS Step-Up Appraisals in NYC: What Heirs and Executors Actually Need to Know

If you have inherited property in New York City, the single most important number you need is not the current sale price. It is the value as of the date of death.

That number — the “stepped-up basis” — determines how much capital gains tax you will owe when you eventually sell. In New York City, where a Brooklyn brownstone bought for $40,000 in 1972 can sell for $3,500,000 today, getting that number wrong is not an academic exercise. It is the difference between a manageable tax bill and a catastrophic one.

At East Coast Appraisals, we deliver estate appraisals every week for executors, estate attorneys, accountants, and heirs across all five boroughs. After 35+ years in NYC, we have seen what happens when the appraisal is done right and what happens when it is not. This guide covers what you actually need to know.

What "Step-Up in Basis" Means (With a Real NYC Example)

Basis is what an asset is considered to have cost for tax purposes. When you buy a property, your basis is what you paid. When you inherit a property, the IRS resets your basis to the fair market value of the property as of the date of the previous owner’s death — under Internal Revenue Code §1014.

A real NYC example:

• A father purchases a Park Slope brownstone in 1972 for $42,000.
• He passes away in 2026. The brownstone is worth $3,400,000.
• The daughter inherits. Her basis is now $3,400,000 — not $42,000.
• She sells the brownstone for $3,500,000.
• Her capital gains tax is calculated on $100,000, not $3,458,000.

Without the step-up, she would owe federal capital gains tax, the 3.8% net investment income tax, and New York State and City income taxes — roughly 32-35% of the gain combined. On $3,458,000 that is over $1,100,000 in tax. With the step-up, she owes about $32,000.

That is what an IRS step-up appraisal is for: establishing, with credibility and documentation, what the date-of-death value actually was.

What an IRS Step-Up Appraisal Is

An IRS step-up appraisal — also called a date-of-death appraisal, an estate appraisal, or a retrospective appraisal — is a formal valuation that establishes the fair market value of inherited property as of a specific historical date.

Three things make it different from a normal market appraisal:

1. The valuation date is in the past. Usually the date of death. The appraiser is not asking what the property is worth today. The appraiser is asking what it was worth on the day the previous owner died, even if that was last week or six years ago.
2. All comparable sales must be from the relevant time period. Sales from the wrong year will fail under IRS scrutiny.
3. The report must comply with the Uniform Standards of Professional Appraisal Practice (USPAP) to be considered a "qualified appraisal" under IRS rules. Zestimates, broker price opinions, and online estimates do not meet this standard.

The deliverable is a written, signed report from a state-licensed or state-certified appraiser. For a contested estate, IRS audit, or estate tax filing, this report becomes the primary evidence of value.

Why NYC Is Different From the Rest of the Country

Most step-up appraisal articles online are written for general audiences. They miss three things that make NYC fundamentally different:

1. The New York State Estate Tax "Cliff"

New York has its own estate tax, separate from the federal estate tax. The NYS exemption is currently around $7,160,000 — far below the federal exemption of approximately $13,990,000.

The trap: if the gross estate exceeds 105% of the NYS exemption, the estate loses the exemption entirely. The entire estate is taxed, not just the overage. This is known as the "cliff," and a NYC property pushed slightly over the threshold can trigger a tax bill measured in hundreds of thousands of dollars.

A defensible date-of-death appraisal can be the difference between an estate that fits under the cliff and one that does not. Attorneys structure estates around these numbers. The appraisal must be precise, documented, and supportable.

2. Co-ops Require Specialized Knowledge

In Manhattan and Brooklyn, a large share of inherited property is co-op shares — not real estate. Co-ops are structured as personal property: the heir does not inherit a deed, but rather shares in a cooperative housing corporation and a proprietary lease.

This affects the appraisal in several ways:

• Co-op transfers do not record deeds in ACRIS. Sale prices must be located through Real Property Transfer Tax filings (RPTT&RET).
• The appraiser must analyze share allocation, monthly maintenance, flip tax, sublet policy, and underlying mortgage status — not just square footage and condition.
• Co-op boards sometimes restrict the inheritance and resale process, which affects exposure time and marketability.
• Comparable sales analysis often requires looking inside the same building or development, since co-op values vary significantly by building.
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A general appraiser unfamiliar with NYC co-op transactions will miss these factors. The IRS will not.

3. Property Values Make Small Percentage Errors Expensive

A 5% error on a $200,000 house is $10,000. A 5% error on a $3,000,000 NYC brownstone is $150,000. The same percentage of basis error in NYC can mean tens of thousands of dollars in additional capital gains tax — every time the property changes hands, forever.

NYC step-up appraisals deserve more rigor than most other markets, simply because the dollar amounts are larger.

When You Need a Step-Up Appraisal

You should obtain one whenever any of the following applies:

• You inherited NYC property and intend to sell it, now or in the future
• The estate is filing a federal estate tax return (Form 706) or New York estate tax return (Form ET-706)
• The estate is large enough that NYS estate tax exposure exists (over approximately $6,800,000 gross estate)
• You inherited the property years ago and never obtained a contemporaneous appraisal
• Multiple heirs are dividing property and need an objective value for buyout calculations
• The property is being transferred to a trust
• You are receiving a Form 8971 from the estate executor and need to verify the basis

The last point catches many people off guard. Since 2015, executors of estates required to file Form 706 must also file Form 8971, which reports beneficiary basis to the IRS. The basis reported on Form 8971 is binding on the heir for future capital gains calculations. If the appraisal underlying Form 8971 was weak, the heir is stuck with the consequences.

Date of Death vs. Alternate Valuation Date

The default valuation date is the date of the previous owner’s death.

Under Internal Revenue Code §2032, an executor may instead elect an "alternate valuation date" — six months after the date of death

— but only if all of the following apply:

1. A federal estate tax return (Form 706) is being filed for the estate
2. The election reduces the gross estate
3. The election reduces the combined federal estate and generation-skipping transfer tax liability

This election is only available to estates above the federal estate tax exemption. Most NYC estates do not use it. When they do, it is usually because property values dropped between the date of death and the six-month mark.

If property is sold during the six-month alternate valuation period, the valuation date for that asset becomes the sale date — not the six-month date.

These rules are mechanical and unforgiving. The estate’s attorney and accountant make the election decision, but the appraiser must understand which valuation date governs the report.

What Makes a Defensible Step-Up Appraisal

Not every appraisal will hold up to IRS scrutiny. A defensible step-up appraisal includes:

• Performed by a state-licensed or state-certified appraiser, not an online service or broker
• Full USPAP compliance with a properly identified report type
• Clearly identified retrospective effective date matching the date of death (or alternate valuation date)
• Comparable sales drawn from the relevant time period — typically within six months on either side of the valuation date
• Market conditions analysis specific to the valuation period
• Detailed property description with photographs, even if inspected after the date of death (with appropriate extraordinary assumptions disclosed)
• Signed certification by the appraiser
• Sufficient detail that an IRS examiner could trace every conclusion to underlying data

The report should also reflect methodology consistent with IRS Revenue Ruling 59-60 (general valuation principles) and Treasury Regulation §20.2031-1(b) for fair market value.

Common Mistakes We See in NYC

The mistakes we see most often, in order of how expensive they get:

1. Using current market value instead of date-of-death value. Especially common when the heir consults an appraiser years after inheriting. The current market is irrelevant. The retrospective value is what matters.
2. Relying on the property’s tax assessed value. NYC assessed values are intentionally far below market — particularly for Class 1 (one- to three-family homes) and Class 2 (residential co-ops, condos, rentals). Using assessed value as a proxy for market value will dramatically understate basis.
3. Using a Zestimate, Redfin estimate, or other automated valuation model. These are not USPAP-compliant. They will not survive IRS examination.
4. Skipping the appraisal entirely. Without contemporaneous documentation, the IRS can challenge any reported basis. The burden of proof falls on the heir, often years later, when records are harder to assemble.
5. Hiring an out-of-area appraiser. Step-up appraisals require deep familiarity with the local market on the date of death. An appraiser who does not work in NYC will miss neighborhood-specific shifts that affect value.
6. Waiting too long. Comparable sales become harder to find as databases age. Photos, condition records, and market context get harder to assemble. Most retrospective work is still possible, but the further out you wait, the harder it gets.

What We Do

East Coast Appraisals has been performing estate and date-of-death appraisals across NYC since 1990. Our work has been used in Surrogate’s Court filings in all five boroughs, federal estate tax returns, New York State estate tax returns, contested probate, basis documentation for living heirs, and internal estate planning.

Reports are issued under Michael Pavlakos, NYS Certified General Appraiser (#45000005617), and are USPAP-compliant. We perform retrospective appraisals for dates of death from last month back to many years prior.

If you are an executor, estate attorney, accountant, or heir handling NYC property, call 718-834-1700 or contact us through our website. The earlier in the process you bring us in, the better.