Written by Russell Harrist
Colorado Certified Residential Appraiser · Certified Probate Expert (CPE) · 25 Years of Experience
Published August 4, 2026
Most personal representatives know they need an appraisal for probate. Fewer know that the same document can shield the heirs from a significant capital gains tax bill when the property is eventually sold. Here is how it works.
When someone sells a property, the IRS calculates the capital gain by subtracting the cost basis from the sale price. The higher the cost basis, the smaller the gain, and the less tax owed.
For a property that was purchased years ago, the original owner’s cost basis is typically what they paid for it, adjusted for improvements. For a property purchased decades ago at a much lower price, that original basis can be very low, which would create a very large taxable gain if the property were sold today.
The stepped-up basis changes that for heirs. Under federal tax law, when someone inherits a property, their cost basis is not the price the decedent paid. Instead, it is reset to the fair market value of the property at the date of the decedent’s death. This reset is the “step-up” in basis.
In plain terms: If a parent bought a home in 1985 for $120,000 and it is worth $600,000 at the time of death, the heir’s cost basis is $600,000, not $120,000. If the heir sells the property for $615,000, the taxable gain is only $15,000, not $495,000.
This is one of the most significant tax benefits available to heirs, and it applies automatically under federal law, but only if the fair market value at the date of death is accurately established and documented.
The IRS requires that the stepped-up basis reflect the property’s fair market value as of the date of death, not an estimate, not an assessed value, and not a real estate agent’s informal opinion. A professionally prepared, USPAP-compliant appraisal with a date of death effective date is the appropriate way to document this value.
This is the same appraisal that satisfies the probate court and the estate administrator. One assignment, two purposes, but both depend on the value being accurate and defensible.
An appraisal that sets the date of death value too low understates the stepped-up basis. If the heir later sells for more than that understated value, the taxable gain is larger than it should be, and the heir pays more tax than necessary.
An appraisal that sets the value too high is equally problematic. If the estate owes federal estate tax, an inflated value increases the taxable estate. And an appraisal that is not defensible, whether prepared by an unqualified person or without proper methodology, may not be accepted by the IRS at all, leaving the heir without a documented basis.
An accurate, USPAP-compliant date of death appraisal by a qualified appraiser is the right tool for both purposes.
These numbers are illustrative. The actual tax impact in any specific situation depends on many variables including the length of time the heir holds the property, applicable tax rates, and deductions. Consult a CPA for guidance specific to your situation.
* Based on a 15% long-term capital gains rate. Actual rate depends on the heir’s income and holding period. Consult a CPA.
Does the stepped-up basis apply even if no estate tax is owed?
Yes. The stepped-up basis and the federal estate tax are separate matters. The stepped-up basis applies to inherited property regardless of whether the estate owes any federal estate tax. Most estates, including the vast majority of Colorado estates, do not reach the federal estate tax threshold, but the heirs still receive the stepped-up basis and its capital gains benefit.
What if the heir plans to keep the property rather than sell it?
The stepped-up basis still applies if the heir sells in the future. In the meantime, the date of death appraisal satisfies the probate requirements regardless of what happens to the property afterward. There is no downside to having an accurate date of death value documented even if no immediate sale is planned.
Does Colorado have a state capital gains tax?
Colorado does not have a separate state capital gains tax. Capital gains are taxed as ordinary income at the Colorado state income tax rate, currently 4.4%. The federal capital gains tax (15% or 20% for most taxpayers, depending on income) applies separately. Both are reduced proportionally when the stepped-up basis reduces the taxable gain.
Can I use the county assessor’s value or Zillow instead of an appraisal?
No. The IRS does not accept assessed value or automated online estimates as documentation of fair market value for basis purposes. A USPAP-compliant appraisal prepared by a qualified appraiser with an effective date of death is the appropriate documentation. An appraisal prepared without proper methodology or by an unqualified person may be challenged or disallowed entirely.
Is there a time limit on getting the date of death appraisal?
There is no strict statutory deadline for obtaining a date of death appraisal for basis purposes, but the further from the date of death the appraisal is ordered, the more complex the retrospective analysis becomes. It is always easier, and the resulting report is more defensible, when the appraisal is ordered relatively close to the date of death. If significant time has passed, a retrospective appraisal can still be performed using archived market data.
A note on tax advice: Great Estates, Inc. provides real estate appraisals and valuation services. The information on this page is educational and does not constitute tax or legal advice. The tax implications of an inherited property are specific to each situation and depend on factors that are beyond the scope of an appraisal engagement. Please consult a qualified CPA or tax attorney for guidance specific to your estate.
A USPAP-compliant appraisal from Great Estates, Inc. satisfies probate requirements and establishes the stepped-up cost basis your heirs will rely on at sale. Order online in about two minutes, or contact Russell with questions.