Alternate valuation date

What it means

An estate is normally valued as at the date of death, and that value fixes both the estate tax and the beneficiaries' basis for capital gains. Where a market has fallen sharply in the months since, the estate is being taxed on a value nobody can now realize.

Federal law allows an alternative: everything is valued six months after the date of death instead, except anything sold or distributed in the meantime, which is valued as at that transaction. It is all or nothing — the election covers the whole estate, not the assets it would help.

Two conditions gate it. The election is available only if it reduces both the value of the gross estate and the estate tax due, and it is made on the estate tax return. An estate small enough not to file cannot make it.

It cuts both ways. A lower value means less estate tax and also a lower basis for the beneficiaries, so a family that inherits and then sells may pay in capital gains what the estate saved.

Why it matters

It exists for exactly the case where a death coincided with a market fall, and it has to be claimed rather than applied.

It is also a decision with two sides, and an estate that takes it without looking at the basis consequence may have moved the cost rather than removed it.

When you are likely to meet it

• When an estate is large enough to file a federal estate tax return.
• When the value of a portfolio or a business has fallen materially since the death.
• When an accountant asks whether the estate wants to elect it.

Related terms

• AppraisalA professional opinion of what something was worth on a particular date — usually the date of death.
• Date-of-death valueWhat something was worth on the day the person died. It is the number the estate, and often the tax, is measured by.
• Estate taxA tax on the value of what somebody left, paid by the estate before anything is distributed.
• Fair market valueWhat a willing buyer would pay a willing seller, neither under pressure and both knowing the facts.
• Step-up in basisThe tax rule that resets an inherited asset's value to what it was worth on the date of death.

Official sources

The authority this page describes, at the agency that publishes it. Sahvelo does not restate a rule from a secondary source.

• IRS — estate tax (opens in a new tab)

Sahvelo guidance that uses this

• Taxes after a death