Determining the total value of an estate is an important part of estate administration. Real estate is often the primary asset of an estate, making its reported value a crucial variable in determining the amount of state or federal estate taxes owed, if any. The reported value of real estate also has significant tax implications for the person or entity to whom the property passes.
While the estate administrator can use the assessed value of the real estate at the date of death, this approach has its drawbacks. First, no two pieces of real estate are identical. Assessments do not take into account all the specifics of the property. This means that the decedent’s real estate could be overvalued. Second, every federal estate tax return (known as the form 706) is reviewed by the IRS. If the estate must file an estate tax return, comprehensive and detailed documentation of real estate valuation can help avoid hitches in the review process.