Alternate Valuation Date
for Estate Tax
When someone passes, the estate’s assets are normally valued as of the date of death. But if values dropped in the months after, the tax code gives the executor a choice: use the values from six months later instead. This can save the estate significant tax, but the decision has consequences for everyone who inherits.
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Choosing a different valuation date
Normally, everything in the estate is valued as of the date of death. That value determines how much estate tax is owed and what basis the heirs receive on inherited property. But Section 2032 of the tax code allows the executor to elect a different date: six months after the date of death.
If the stock market dropped, real estate values fell, or a business lost value in the months after death, this election lets the estate use those lower values. Lower values mean less estate tax.
When the alternate date helps
The election is most useful when the estate is large enough to owe federal estate tax (generally above the exemption, which is $15 million per person in 2026) and asset values declined after death. A significant market correction, a drop in real estate values, or a business downturn in the months following death can create real savings.
The IRS requires that the election must actually reduce the estate tax. You cannot make the election if it would not change the tax owed.
When it does not work
The election is not available in two situations. First, if the estate is below the exemption and owes no estate tax, the election cannot be made simply to give heirs a different basis. Second, the election must reduce both the total estate value and the tax owed. If values went up after death, the election would increase the tax, so it is not available.
The election also applies to everything in the estate. You cannot pick which assets get the new date. If some assets went up and others went down, you have to weigh the net effect across the whole portfolio.
The six-month window
The alternate date is exactly six months after the date of death. But if any asset is sold or distributed to an heir before that six-month mark, it is valued as of the date it left the estate instead. So if the executor distributes stock to a beneficiary in month three, that stock is valued as of the distribution date, not the six-month date.
This means the executor should think carefully about the timing of distributions when considering this election. Distributing assets early can change the math.
How it affects what heirs pay when they sell
This is the trade-off most families do not see coming. Your basis in inherited property (the starting point for calculating gain when you sell) is whatever value was used on the estate tax return. If the executor elects the alternate date and values dropped, the estate pays less tax, but every heir gets a lower basis.
That lower basis means more capital gains tax when heirs eventually sell. In some cases, the capital gains tax across all the beneficiaries can exceed the estate tax savings. We run the numbers both ways before recommending the election.
The deadline
The election must be made on a timely filed Form 706, including extensions. If the 706 is filed late without an extension, the election may be lost. Once made, the election cannot be changed. This is a permanent, one-time decision.
What we handle
- Running the comparison: estate tax savings vs. capital gains cost to beneficiaries
- Tracking which assets were distributed or sold within the six-month window
- Coordinating the election with the portability (DSUE) decision
- Documenting the alternate date values on the Form 706
- Communicating the new basis to all beneficiaries
Frequently Asked Questions
Can I pick which assets to revalue and which to keep at the date-of-death value?
No. The alternate valuation date applies to every asset in the estate. You cannot elect it for assets that went down while keeping the date-of-death value for assets that went up. It is all or nothing. The executor must evaluate the net effect across everything in the estate before making the election.
Does this election affect what beneficiaries owe when they sell inherited property?
Yes. The basis that beneficiaries receive on inherited property equals whatever value was used for estate tax purposes. If the executor elects the alternate date and values are lower, beneficiaries get a lower basis, which means they will owe more capital gains tax when they sell. This is the main trade-off of the election, and it should be modeled before the decision is made.
What if the estate does not owe any estate tax?
If the estate is below the federal exemption and owes no estate tax, the election is not available. The IRS requires that the election actually reduce the estate tax liability. You cannot use it solely to adjust beneficiary basis. This rule was added specifically to prevent using the election as a basis-planning tool in non-taxable estates.
When do I have to decide?
The election must be made on a timely filed Form 706, including any extensions. For most estates, the 706 is due nine months after the date of death, with a six-month automatic extension available. Once you make the election, it is irrevocable. If the 706 is not filed on time, the election is lost permanently.
Related services
Federal Estate Tax (Form 706)
The election is made on the 706. We prepare the return with the right valuation date.
DSUE & Portability
The election affects how much unused exemption the surviving spouse can claim.
Estate Administration
The full compliance sequence from date of death through closing, including the valuation date decision.