Mortgage Underwriting: When a loan is used to purchase or refinance a property, often an appraisal of the collateral is needed.

Estate Tax: Estates above a certain value are subject to estate taxes. An appraisal establishes the fair market value of assets (e.g., real property) at the date of death, which is critical for determining the taxable estate.

Trusts:

• If a deceased person's assets, such as real estate, are held in a trust (e.g., a revocable living trust or irrevocable trust), an appraisal might be needed for any of the following reasons:
  • Distribution to Beneficiaries: When the trust terms dictate asset distribution after death, trustees may require appraisals to fairly divide property or liquidate it.
  • Tax Purposes: Appraisals may be needed as of the date of death to establish a new cost basis for capital gains tax if beneficiaries sell the property later (known as a "step-up in basis").
  • Trust Administration: Trustees might need valuations to comply with fiduciary duties, ensuring they manage or sell assets responsibly.
• When transferring property such as real estate into a trust, an appraisal determines its fair market value at the time of transfer. This provides a clear baseline for the trust’s records, ensuring transparency about what’s being placed into the trust and its worth.
  • Gift Tax: If the property is transferred into an irrevocable trust during the grantor’s lifetime, it may be considered a taxable gift to the trust beneficiaries. An appraisal is required to calculate the gift’s value, which determines if it exceeds annual gift tax exclusions or lifetime exemptions. The IRS often requires a qualified appraisal for significant assets to substantiate the reported value.
  • Capital Gains Tax Basis: The appraisal sets the property’s cost basis at the time it enters the trust. If the trust later sells the property, this basis is used to calculate capital gains tax. For revocable trusts, the basis typically adjusts to the date-of-death value upon the grantor’s passing, but for irrevocable trusts, the basis is locked in at the transfer date unless modified by law.

Probate: If a deceased person’s estate goes through probate, an appraisal of assets may be required. Courts often need an accurate valuation to ensure proper distribution to heirs or beneficiaries and to calculate any debts or taxes owed.

Divorce: A real estate appraisal is often needed during a divorce to determine the fair market value of any property owned by the couple, such as a marital home or investment properties. An appraisal can help with distribution, buyout decisions, and settling value disputes.

Charitable Donations: If an individual or entity donates assets (e.g., real estate) to charity, an appraisal verifies the value for tax deductions.

Buying or Selling a Property: To determine a market value of a property during a sale or purchase, ensuring the buyer and/or seller are well-informed.

Property Tax Appeals: Property owners may request an appraisal to challenge a property's value for real estate tax purposes.