When parents or grandparents pass down a longtime family home in Michigan, it is often the single greatest financial gift their children will ever receive. However, without proper documentation at the time of inheritance, selling that inherited house can trigger massive confusion—and potentially tens of thousands of dollars in unnecessary federal and Michigan state capital gains taxes.
Fortunately, the U.S. tax code includes a powerful provision for heirs known as the "Step-Up in Basis" (Internal Revenue Code Section 1014).
To lock in this tax benefit and protect yourself in the event of an IRS audit, there is one document every heir, executor, and trustee needs in their file: a certified Date of Death real estate appraisal.
What Is Tax "Basis" and How Does the "Step-Up" Work?
In simple terms, a property's cost basis is the original purchase price of the home (plus documented major capital improvements), which the IRS uses to calculate your taxable profit when you sell.
A Real-World Oakland County Example
Imagine your parents bought their home in Birmingham or West Bloomfield back in 1985 for $95,000. Over the next forty years, Southeast Michigan real estate values climbed steadily. When your surviving parent passes away in 2026, that same home is now worth $545,000.
- Without the Step-Up in Basis (e.g., if they gifted the house to you outright while alive without proper trust planning): Your cost basis would remain $95,000. If you sold the home for $545,000, you would face capital gains taxes on $450,000 of profit!
- With the Step-Up in Basis Upon Inheritance: Under federal tax law, when you inherit the home upon your parent's passing, the property's tax basis automatically "steps up" to its Fair Market Value as of the exact Date of Death ($545,000).
The Tax Savings: If you and your siblings later sell the inherited home for $550,000, your taxable capital gain is only $5,000 ($550,000 sale price minus the $545,000 stepped-up basis)—saving your family roughly $70,000 to $100,000+ in combined federal and state capital gains taxes.
Why You Must Document the Step-Up in Basis With a Certified Appraisal
Here is the catch that catches many Michigan families off guard: The burden of proving the home's Fair Market Value on the date of death falls 100% on the taxpayer.
When you or your CPA file IRS Schedule D and Form 8949 after selling an inherited property, you must report the stepped-up basis. You need a certified appraisal by a State Licensed Appraiser in three critical scenarios:
1. When Heirs Keep, Rent, or Live in the Home Before Selling
If you inherit a home in Troy, Novi, Grosse Pointe, or Ann Arbor and decide to keep it as a rental property, let a family member live in it, or hold onto it for three years before selling, the eventual sale price won't match the Date of Death value. A certified Date of Death appraisal locks in your exact historical tax basis permanently.
2. When the Surviving Spouse Inherits Half (or All) of the Home
When one spouse passes away, documenting the home's Date of Death value establishes the stepped-up basis for the deceased spouse's share—which is invaluable if the surviving spouse downsizes and sells the family home three or five years later (especially once appreciation exceeds the standard home-sale exclusion).
3. When the Property Is Sold Off-Market or Below Market Value
If the family sells the house quickly at a discount to an investor or to a relative, an IRS auditor may question the reported basis unless it is backed by a formal USPAP-compliant appraisal report.
What If We Forgot to Order an Appraisal When Our Parent Passed Away?
Don't panic! Even if your loved one passed away one, three, or five years ago and you are only now preparing to sell the home or file amended tax returns, Michigan Appraisal Team Inc can perform a Retrospective Date of Death Appraisal. Using historical MLS data, county property records, and verified comparable sales from the exact month and year of passing, we can accurately establish and certify your stepped-up tax basis.
Protect Your Family's Inheritance Today
A certified Date of Death appraisal costs a tiny fraction of the thousands of dollars it saves your family in capital gains taxes and CPA headaches.
- Call Us Directly: (248) 798-4446
- Email: info@michiganappraisalteam.com
- Office Location: 6775 Daly Road, Suite 104, West Bloomfield, MI 48322
Get Started: Request a Step-Up in Basis / Date of Death Appraisal or visit our Senior Estate & Trust Appraisals page.