How to Value an Estate for Inheritance Tax: Calculations and Examples

To value an estate, you will need to calculate what the deceased person owned and how much those assets were worth at the time of death. The final amount can determine whether federal or state estate taxes apply, affect how property is divided among heirs and establish the tax basis beneficiaries receive for inherited assets. Those values can also affect state inheritance tax when it applies, although liability depends on the applicable state rules, the amount inherited and the beneficiary’s relationship to the deceased.

A financial advisor can help calculate an estate’s value and estimate how much may be subject to inheritance or estate taxes.

How to Calculate the Value of an Estate

For estate valuation, each asset is generally assigned its fair market value as of the date of death. This can include real estate, bank and investment accounts, retirement savings, business interests, vehicles and personal property. Fair market value generally reflects what an asset could reasonably sell for between a willing buyer and seller.

Debts and eligible expenses are then deducted from the gross estate. These may include mortgages, credit card balances, personal loans, unpaid medical bills and certain costs of settling the estate. The amount remaining after allowable deductions is used to calculate the taxable estate.

Some property may need a professional appraisal. Homes, closely held businesses, artwork, antiques and collectibles may require formal valuations, particularly when estate taxes could apply. Publicly traded stocks are generally valued using the average of their high and low selling prices on the date of death. An executor may also be able to elect an alternate valuation date under federal estate tax rules.

For example, suppose an estate has a $700,000 home, $450,000 in investments, $100,000 in bank accounts and $50,000 in personal property. Those assets produce a gross estate of $1.3 million. Subtracting a $200,000 mortgage, $25,000 in other debts and $25,000 in deductible administrative expenses would reduce the estate to $1.05 million before considering any other applicable deductions. Once the estate’s assets and liabilities have been valued, the amount passing to each beneficiary can be calculated and then tested against the applicable state’s inheritance tax rules.

How Estate Tax and Inheritance Tax Differ

Estate tax is generally based on the taxable value of the estate and is paid by the estate before assets are distributed. The IRS says federal estate tax applies to the entire taxable estate rather than the share received by an individual beneficiary.

For 2026, the federal estate tax filing threshold is $15 million. The gross estate includes property such as cash, securities, real estate, insurance, annuities and business interests, while allowable deductions can reduce the taxable estate.

Inheritance taxes, when imposed by a state, are separate from the federal estate tax. Because the IRS does not provide state inheritance tax rules, rates or exemptions, those details should be sourced from the applicable state tax authority.

This distinction matters when an estate has multiple beneficiaries, since inheritance tax generally depends on what each beneficiary receives and how that beneficiary is treated under state law.

Suppose a $600,000 estate is divided between two beneficiaries. An adult child receives $400,000 and a friend receives $200,000. Assume the state exempts children but taxes an unrelated beneficiary at 15% with no exemption. The adult child would owe no inheritance tax on the $400,000 inheritance, while the friend would owe $30,000 on the $200,000 received ($200,000 × 15% = $30,000). The calculation shows why two people inheriting from the same estate can face different inheritance tax bills.

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How Estate Valuation Can Affect Taxes and Heirs

Federal estate tax may apply when an estate exceeds the federal exemption, while some states impose their own estate or inheritance taxes under separate state rules. The value of the estate is used to determine whether those taxes apply and how much may be owed.

Valuation also affects the tax basis of inherited assets. In most cases, inherited property receives a step up or step down in basis to its fair market value on the date of death or another value permitted under federal tax rules. If a beneficiary later sells a home, stocks or other appreciated property, the difference between that basis and the sale price generally determines the capital gain or loss.

Asset values can also affect how property is divided among heirs. For example, one beneficiary might receive a family home while another inherits investment accounts. Valuing both accurately can help determine whether they are receiving comparable shares. Disagreements over real estate, business interests or collectibles can delay probate and lead to disputes among beneficiaries.

Complex estates may require appraisers, accountants or estate planning attorneys to support the values reported on tax returns and other legal filings. Professional valuations can be particularly important when an estate includes property without a readily available market price, such as a private business or valuable collectibles.

Assets That Are Often Misvalued

Some assets are relatively easy to value because they have readily available market prices. Others, however, require professional appraisals or more detailed analysis. Misvaluing assets can lead to tax reporting errors, disputes among beneficiaries and delays in settling the estate.

The following are some of the assets that are most commonly misvalued during the estate administration process:

Personal property. It’s common to over- or underestimate the value of household furnishings, vehicles, firearms, electronics and other personal belongings. While many items have modest resale value, certain specialty items may require appraisals to establish an accurate fair market value.
Real estate. Homes, vacation properties and undeveloped land are often assigned outdated or estimated values rather than their fair market value as of the date of death. A professional appraisal is typically the most reliable way to determine an accurate value.
Closely held businesses. Ownership interests in private companies can be difficult to value because they are not publicly traded. Business appraisals often consider factors like revenue, profitability, assets, liabilities and comparable market transactions.
Collectibles and artwork. Fine art, antiques, jewelry, coins, wine collections and other collectibles may be worth significantly more, or less, than owners or heirs expect. Specialized appraisers are often necessary to determine market value.
Retirement accounts. Traditional IRAs, 401(k)s and similar accounts are generally easy to value based on account statements. However, beneficiaries sometimes overlook the potential income tax consequences of inherited retirement assets, which are separate from estate valuation.
Investment portfolios. Stocks, bonds and mutual funds should generally be valued at fair market value on the date of death. An alternate valuation date may apply when the estate qualifies for and makes the federal alternate valuation election.

Other Common Estate Valuation Mistakes

Even when the valuation of major assets is correct, other errors can affect an estate’s reported value and create tax or legal complications. Executors and personal representatives are responsible for identifying all estate assets and liabilities. Overlooking key details can result in inaccurate filings or disputes during the probate process.

Not seeking professional guidance when needed. Complex assets, such as business interests, investment real estate or valuable collections, often require specialized expertise. Working with qualified appraisers, accountants or estate planning attorneys can help reduce valuation errors. It can also help with compliance with applicable tax rules.
Overlooking hidden or forgotten assets. It’s not uncommon for estates to omit old bank accounts, retirement plans, life insurance proceeds payable to the estate, digital assets or mineral rights. Failing to identify these assets can understate the estate’s value and delay administration.
Using outdated valuations. Property values can change significantly over time. Relying on an old appraisal, tax assessment or purchase price instead of the fair market value as of the date of death may produce an inaccurate estate valuation.
Failing to document appraisals. Even when assets are valued appropriately, poor documentation can create problems if beneficiaries or tax authorities question the reported figures. Keeping copies of appraisals, account statements and valuation reports helps support the estate’s calculations.
Ignoring debts and deductible expenses. Some executors focus solely on asset values without accounting for mortgages, loans, unpaid bills and eligible estate administration expenses. These liabilities can reduce the taxable value of the estate. As such, it is important to document them carefully.
Misunderstanding jointly owned or beneficiary-designated assets. Certain assets, such as jointly owned property, payable-on-death accounts and retirement accounts with named beneficiaries, may pass outside of probate. However, depending on the circumstances, they may still factor in when determining the value of the taxable estate.

Bottom Line

Estate valuation can affect taxes, inherited property basis and the amount each beneficiary receives.

Accurately valuing an estate is an important step in determining whether estate and inheritance taxes apply. It also provides values that can be used when distributing assets among beneficiaries. Establishing the fair market value of all assets requires accounting for outstanding debts and obtaining professional appraisals when necessary. When state inheritance tax applies, the amount owed can depend on the value of the inheritance, the beneficiary’s relationship to the deceased and the state’s rules. Being thorough and accurate can help executors avoid costly mistakes.

Estate Planning Tips

A financial advisor can help estimate your estate’s taxable value and identify potential federal or state tax exposure. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While it may be tempting to save some money and plan your estate by yourself, you should still be careful with these DIY estate planning pitfalls.