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A date-of-death appraisal establishes what an inherited home was worth on the day the owner died. Under IRC Section 1014, that value generally becomes the heirs' new tax basis, so capital gains on a later sale are figured from that value, not from the price the parent paid decades ago. A certified appraisal documents it.
I am Ed Drost, a Maryland State Certified Residential Appraiser and FHA appraiser. I have appraised homes since 1989, with more than 20 years of reverse mortgage (HECM) experience. This article is part of our series for heirs. Start with the cornerstone guide, What Happens to a Reverse Mortgage When the Borrower Dies?, or our free step-by-step guide for heirs.
What is a stepped-up basis?
Your basis in a home is the starting number used to figure a taxable gain when you sell. If a parent bought a Baltimore home for $90,000 in 1985 and it was worth $300,000 when they died, the heir does not inherit the $90,000 basis. Under IRC Section 1014, the heir's basis is generally reset to the fair market value on the date of death, here $300,000. Inherited property is also generally treated as long-term for capital gains purposes, no matter how long the heir owns it.
The result: if the heir later sells for about $300,000, there is little or no taxable gain, rather than a gain figured on $210,000 of appreciation.
Does it apply when the home has a reverse mortgage?
Yes. The step-up is based on the home's value, not the owner's equity. The reverse mortgage balance does not reduce the basis. The basis is fair market value at death, whatever was owed.
| No step-up | With step-up | |
|---|---|---|
| Original purchase (1985) | $90,000 | n/a |
| Value at death (appraised) | n/a | $400,000 |
| Sale price by heirs | $410,000 | $410,000 |
| Taxable gain | $320,000 | $10,000 |
Even before commissions and other adjustments, the difference in the amount of gain is $310,000. Your tax advisor will work out the rest. When the loan is larger than the home, heirs often sell at or below the date-of-death value, which generally leaves little or no taxable gain. A loss on an inherited personal residence is generally not deductible, so check with a CPA.
Why are there two appraisals?
On a reverse mortgage home, heirs often deal with two valuations that answer different questions:
| Servicer's FHA appraisal | Date-of-death appraisal | |
|---|---|---|
| Purpose | Sets the value for the HUD payoff (the 95% rule) | Sets the tax basis and estate value |
| Effective date | Recent, as of the servicer's order | The exact date the owner died |
| Ordered by | The servicer | The estate or heirs |
One cannot stand in for the other. The first helps with the payoff, and the second protects you at tax time.
Why is a broker's CMA not enough?
A comparative market analysis (CMA) from a real estate agent is a marketing opinion, usually prepared to win a listing. It is not an appraisal, and it is not prepared to USPAP standards or signed as a certified opinion of value. For an estate tax return, the IRS expects a qualified appraisal from a qualified appraiser, and where basis is questioned, a CMA is a weak form of support. A certified appraisal is the stronger, court-ready and IRS-ready document. See our article: Appraisal vs. CMA for Probate.
How is a date-of-death appraisal done years later?
Appraisers can value a home as of a past date. The report has two dates: the date of inspection, and the effective date, which is the date of death. The appraiser uses closed sales from the time of death, reconstructs the market as it stood then, and documents the home's condition on that date as best the records allow (tax records, old photos, listing history, permits, and neighbors' recollections). Because records fade, the sooner it is done, the easier it is. See also: Can You Get a Retrospective Appraisal Years Later?
When do heirs need one?
- If the heirs plan to sell. It documents the basis and can save thousands in capital gains tax.
- If the estate must file a tax return. The federal estate tax exemption is very high (about $15 million per person for 2026), but Maryland has its own, much lower estate tax threshold and an inheritance tax that applies to some heirs, so Maryland estates need to be reviewed by an attorney or CPA.
- If heirs disagree on value. A neutral certified number settles disputes and is court-ready.
- For the probate inventory. The estate lists the home's value.
If your goal is simply to walk away, check with your CPA about whether you need one at all.
The big picture
For deadlines, your four choices and what to do first, read the full guide: What Happens to a Reverse Mortgage When the Borrower Dies? For our service, see Date of Death Appraisals.
Common questions
What is a date-of-death appraisal?
It is a certified appraisal that establishes the fair market value of a home as of the exact day the owner died. It sets the heirs' stepped-up tax basis and supports the estate's valuation.
Does stepped-up basis apply to a home with a reverse mortgage?
Yes. The basis is the home's fair market value at death. The reverse mortgage balance does not reduce it.
Can I use a real estate agent's CMA instead of an appraisal?
A CMA is a marketing opinion and carries little weight with the IRS or the court. A certified, USPAP-compliant appraisal is the stronger document.
Can a date-of-death appraisal be done years after the death?
Yes. A retrospective appraisal values the home as of the past date using sales from that time, but records get harder to find as time passes, so it is best to do it soon.
Is the servicer's appraisal the same as a date-of-death appraisal?
No. The servicer's FHA appraisal sets the current value for the payoff. A date-of-death appraisal sets the value on the day the owner died for tax and estate purposes.
Sources
- IRS Publication 551: Basis of Assets
- IRS: About Form 706 (estate tax return)
- HUD: Home Equity Conversion Mortgage (HECM) program
This article is general information, not legal, tax or financial advice. HUD rules and servicer procedures change and every loan is different. Confirm current requirements with your servicer, a HUD-approved housing counselor, a Maryland attorney and a CPA.
More articles
What Happens to a Reverse Mortgage When the Borrower Dies? A Guide for Heirs
The loan comes due, but heirs will not owe more than the home is worth. The 95% rule, the deadlines and the four choices, explained by an FHA appraiser.
How the HUD 95% Rule Works on a Reverse Mortgage
Heirs can pay the lesser of the loan balance or 95% of appraised value. Worked examples, and why a $10,000 appraisal difference moves your price $9,500.
How to Dispute a Reverse Mortgage Appraisal (ROV Checklist)
A step-by-step checklist for heirs: what to request, what counts as proof, and how to ask the servicer to reconsider the value.