Retirement & Financial Planning Report

Assets such as real estate, business interests, collectibles, personal property, and intellectual property may have to be valued for tax purposes when inherited or given away. If this is the case, a thorough appraisal can provide significant tax savings.

Suppose, for example, you inherit a vacation home that was purchased many years ago for $50,000. You should have it appraised. In case of a later sale, you will want to know the stepped-up basis.

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That is, someone who inherits an appreciated asset generally can get its basis increased to the date-of-death value, reducing the tax on a subsequent sale. If that home was worth $200,000 when the owner died, you’ll have a $200,000 basis in the property; if you sell it for $220,000, for example, your taxable gain will be only $20,000.

You also might get an appraisal for assets that have not been inherited. A well-reasoned appraisal can show the value of such an asset when you want to sell it, even if you bought the object at a garage sale.

When you want something valued, tell the appraiser the purpose of the appraisal. This will indicate whether you want the appraisal to be high or low.

* Low appraisal. Suppose, for example, you inherit assets worth well over $2 million. Those assets include hard-to-value items such as paintings and real estate. Here, you’d like a low appraisal, in order to save estate tax.

* High appraisal. On the other hand, suppose you inherit art, real estate, etc., from someone whose estate is under $2 million and thus not subject to estate tax. Then a high appraisal will be better.

The higher the appraisal, the higher your basis (your cost for tax purposes). On a subsequent sale, a higher basis will mean a lower tax bill.

There is nothing ethically wrong with indicating how the appraisal will be used. If large amounts are involved, ask an attorney to hire the appraiser. Another appraisal might be sought, to get a better result, and the process will be protected by attorney-client privilege.

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To find an appraiser, you might start with a local accounting firm. This firm might have one or more partners who can perform appraisals. If not, the firm may be able to recommend someone.

What’s more, every appraiser won’t be able to value every type of asset.

* Real estate appraisers, for example, might hold designations such as Independent Fee Appraiser (IFA) or Member Appraisal Institute (MAI). Make sure that you hire someone who is familiar with the local real estate market.

* For collectibles, local auction houses may be good sources of appraisals, if they have someone on-staff who is knowledgeable about the type of item you’d like valued.