KO Appraisal
Guide

The Alternate Valuation Date Under IRC § 2032

The alternate valuation date is a federal estate tax election under IRC § 2032 that values the gross estate six months after the date of death instead of on the date of death. It is not simply available on request: the election may be made only if it decreases both the value of the gross estate and the sum of the estate and generation-skipping transfer taxes payable, after credits. It is made on the federal estate tax return, Form 706, or Form 706-NA for a nonresident non-citizen decedent, and it applies to the entire gross estate rather than to selected assets. It becomes irrevocable once the filing window closes.

The two-part gate under § 2032(c)

IRC § 2032(c) is the provision people miss. No election may be made unless it decreases both the value of the gross estate and the sum of the chapter 11 estate tax and the chapter 13 GST tax imposed with respect to property includible in the decedent's gross estate, reduced by credits allowable against those taxes. Both conditions, not either one. The Form 706 instructions state the same requirement.

The consequence is that an estate whose value fell after death may still be ineligible. If the estate owes no federal estate tax, because it is below the basic exclusion amount, or because the marital or charitable deduction absorbs the taxable estate, then no election can reduce tax, and the second condition fails. Estates filing a 706 solely to preserve portability are in exactly this position. (The exclusion amount is indexed annually and changes every year; get the current figure from the estate's CPA rather than from any web page, including this one.)

Eligibility is not always known at filing. Where the return as filed does not show a decrease in both the gross estate and the tax, typically because values are unsettled or expected to be examined. Treas. Reg. § 20.2032-1(b)(2) permits a protective election, which takes effect if and when it is later determined that alternate valuation does decrease both. That is the mechanism for preserving the election through an examination instead of forfeiting it, and it is worth raising with the return preparer before the return goes out.

This is worth stating plainly because the phrase "alternate valuation date" circulates as though it were a free option to pick the lower of two numbers. It is not. It exists to relieve estates that would otherwise pay tax on values that evaporated before the assets could be liquidated to pay it.

What "six months later" actually means

The mechanics are more specific than the shorthand suggests. Under IRC § 2032(a)(1), property distributed, sold, exchanged, or otherwise disposed of within six months after death is valued as of the date of that disposition. Under § 2032(a)(2), everything else is valued as of the date six months after death. If a house sells four months after death, its alternate value is its value on the sale date, not on the six-month date.

IRC § 2032(a)(3), elaborated by Treas. Reg. § 20.2032-1(f), carves out interests affected by mere lapse of time. The regulation's examples are patents, estates for the life of a person other than the decedent, remainders, reversions, and other like properties. Those are included at their date-of-death value, adjusted only for changes in value not due to the passage of time. A fee simple interest in real property is not affected by this rule, but interests carved out of real property. A life estate measured on another person's life, a remainder, are.

The election also applies to the entire gross estate. You cannot elect it for the property that declined and keep date-of-death values for the property that rose.

The basis trade-off nobody mentions until later

IRC § 1014(a)(2) provides that where the alternate valuation date is elected, the beneficiary's basis is the alternate value, not the date-of-death value. The election that reduces estate tax simultaneously reduces the heirs' income tax basis.

So the analysis is never "is the six-month number lower?" It is a comparison between estate tax saved at the estate's marginal rate and future capital gains tax created for the beneficiaries, discounted for when they are likely to sell. California imposes no estate or inheritance tax, but it does tax capital gain, and it applies no preferential rate to it, so for a California beneficiary the gain created by a lower basis is taxed at ordinary state rates on top of the federal capital gains tax. That calculation belongs to the CPA and the estate attorney. My job is to give them two defensible numbers to run it with.

Note also that IRC § 2032A, special use valuation for qualifying farm and closely held business real property, is an entirely different election with its own eligibility rules, a capped reduction, and a ten-year recapture regime under § 2032A(c). The similar section numbers cause real confusion; the two provisions can interact but they are not alternatives to one another in any simple sense.

The appraisal assignment this creates

An alternate valuation analysis requires two retrospective appraisals of the same property with two different effective dates: the date of death, and either the six-month date or the date of an earlier disposition. Both are developed to the same fair market value standard under Treas. Reg. § 20.2031-1(b), and USPAP requires the effective date of each opinion to be identified and reported (Standards Rule 1-2(d) and Standards Rule 2-2).

The second appraisal has to demonstrate that the market actually moved, with transaction evidence from the second period. A six-month interval is short, and paired-data support can be thin. An appraiser who applies a percentage adjustment to a date-of-death conclusion has not done the work. The second value has to be independently developed and independently supported. Where an examiner disputes an alternate valuation, that is precisely the point of attack.

What the two assignments genuinely share is the property inspection, the physical description, and the highest and best use analysis. The market data supporting each effective date is researched and developed separately, because that is the only part of the work that can show the market moved. Standard turnaround is one to three weeks.

Timing

The estate tax return is due nine months after death under IRC § 6075(a), with an automatic six-month extension of time to file available on Form 4768 under Treas. Reg. § 20.6081-1. That extension extends the time to file, not the time to pay. Under IRC § 6151 the tax is still due nine months after death and interest runs from that date; an extension of time to pay is discretionary under IRC § 6161 and has to be requested separately, on the same form.

Under IRC § 2032(d)(2), no election may be made if the return is filed more than one year after the time prescribed by law, including extensions, for filing it. That one-year outer limit is the hard stop. If the estate is beyond it, the alternate valuation date is gone regardless of the merits.

On irrevocability, the statute and the regulation have to be read together. IRC § 2032(d)(1) says the election, once made, is irrevocable. But under Treas. Reg. § 20.2032-1(b)(1) the operative election is the one on the last estate tax return filed on or before the due date including extensions actually granted, and an election may be revoked on a subsequent return filed on or before that date. Practically: the election can still be changed on a superseding return filed within the filing window, and it locks only when that window closes.

I hold a California Certified General Real Estate Appraiser certificate (BREA #3005065), the MAI and SRA designations, and appear on the ASC National Registry. I accept California property only, and I provide deposition and expert witness testimony. Residential (760) 685-8036, commercial (619) 704-7070.

Common questions

Can we elect the alternate valuation date just because the house is worth less now?
Only if the estate is actually paying federal estate tax and the election reduces that tax. IRC § 2032(c) requires the election to decrease both the gross estate and the tax payable after credits. An estate below the filing threshold, or one fully sheltered by the marital or charitable deduction, cannot use it no matter how much values declined. Where it is genuinely unclear at filing whether the test will be met, Treas. Reg. § 20.2032-1(b)(2) allows a protective election that becomes effective if a decrease is later determined. Work the eligibility question through with the return preparer before commissioning a second appraisal.
Does the election apply to each asset separately?
No. IRC § 2032(a) applies the election to all property included in the gross estate. Property disposed of within the six-month window is valued as of its disposition date, but that is a rule about timing, not an asset-by-asset choice. You cannot take date-of-death values on the assets that appreciated and alternate values on the ones that fell.
The house sold three months after death. Which date do we use?
The date of the sale. Property distributed, sold, exchanged, or otherwise disposed of within six months after death is valued as of the disposition date under IRC § 2032(a)(1). Whether the actual sale price is the fair market value on that date is a separate question, the transaction has to be arm's length, adequately exposed, and free of compulsion, and any post-death repairs or clean-out affect comparability.
Does electing it change the step-up in basis?
Yes, and this is the part that costs families money later. Under IRC § 1014(a)(2), if alternate valuation is elected the heirs' basis is the alternate value. Lowering the estate tax by lowering reported values also lowers basis, which increases capital gains tax on a later sale. California charges no estate tax but taxes capital gain at ordinary income rates, so a California beneficiary feels that trade twice. The election has to be evaluated across both taxes, not just the estate tax return.
Can the election still be changed after we file?
Within the filing window, generally yes. Treas. Reg. § 20.2032-1(b)(1) makes the operative election the one on the last estate tax return filed on or before the due date including extensions actually granted, and permits revocation on a subsequent return filed on or before that date. Once the due date including granted extensions passes, IRC § 2032(d)(1) makes the election irrevocable, and under § 2032(d)(2) no election at all is available on a return filed more than one year after that date.
Who wrote this Kevin O'Brien, MAI, SRA. California Certified General Real Estate Appraiser #3005065, issued by the California Bureau of Real Estate Appraisers (BREA). Practicing in San Diego. This page reflects how these assignments are actually handled, not a summary of other people's summaries.
Where this applies Appraiser licensing is state-specific, there is no national appraisal licence, so appraisal engagements here are California properties, primarily San Diego County. The valuation methodology and the federal tax rules described above apply anywhere in the United States; if your property is in another state, you need an appraiser credentialed there, and this page should still tell you what to ask them for.

Sources

Every statutory and regulatory claim on this page traces to one of the following. Where a source could not be confirmed, the claim was removed rather than softened.

  1. IRC § 2032 (alternate valuation); § 2032(a)(1) (property disposed of within six months is valued at the disposition date); § 2032(a)(2) (all other property valued six months after death); § 2032(a)(3) (interests affected by mere lapse of time are included at date-of-death value, adjusted only for changes not due to lapse of time); § 2032(c) (no election unless it decreases both the gross estate and the sum of the chapter 11 and chapter 13 taxes, reduced by allowable credits); § 2032(d)(1) (election made by the executor on the chapter 11 return; once made, irrevocable); § 2032(d)(2) (no election if the return is filed more than one year after the time prescribed, including extensions)
  2. Treas. Reg. § 20.2032-1(b)(1) (the operative election is the one on the last return filed on or before the due date including extensions actually granted; an election may be revoked on a subsequent return filed on or before that date); § 20.2032-1(b)(2) (protective election, effective if a decrease is subsequently determined); § 20.2032-1(f) (mere lapse of time, patents, estates for the life of a person other than the decedent, remainders, reversions, and other like properties)
  3. IRC § 1014(a)(2) (basis of property acquired from a decedent is the alternate value where § 2032 is elected)
  4. IRC § 2032A and § 2032A(c) (special use valuation for qualified farm and closely held business real property, and its recapture regime. A separate election, not a variant of alternate valuation)
  5. Treas. Reg. § 20.2031-1(b) (fair market value: the price between a willing buyer and a willing seller, neither under compulsion and both reasonably informed)
  6. IRC § 6075(a) (estate tax return due nine months after death); IRC § 6151 (tax payable at the time fixed for filing the return); Treas. Reg. § 20.6081-1 (automatic six-month extension of time to file, requested on Form 4768); IRC § 6161 (discretionary extension of time to pay, requested separately)
  7. IRS Form 706 and Instructions, Part 3 (Elections by the Executor), line 1 (alternate valuation election); IRS Form 706-NA and Instructions, Part V, line 1 (same election for a nonresident non-citizen decedent); IRS Form 4768
  8. USPAP (2024 ed., effective Jan. 1, 2024), Standards Rule 1-2(d) (identify the effective date of the appraiser's opinions and conclusions) and Standards Rule 2-2 (report content, including the effective date)
  9. Advisory Opinion 34, Retrospective and Prospective Value Opinions, published in the USPAP Guidance and Reference Manual; guidance only, not part of the enforceable USPAP standards as of the 2024 edition
  10. Cal. Bus. & Prof. Code § 11300 et seq. (Real Estate Appraisers' Licensing and Certification Law: the California credentialing statute)
  11. Cal. Rev. & Tax. Code § 13301 (neither the state nor any subdivision may impose a gift, inheritance, succession, legacy, or estate tax) and § 13302 (the sole California estate tax is measured by the federal credit for state death taxes, which is zero for decedents dying after the credit's repeal)
  12. Cal. Rev. & Tax. Code § 17041 (California personal income tax rates; California applies no preferential rate to capital gain)

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