Alternate Valuation Date
Section 2032

The election and its requirements

The alternate valuation date election under Section 2032 allows the executor to value all estate assets as of six months after the date of death rather than the date of death. The election must satisfy two conditions: it must reduce the value of the gross estate, and it must reduce the estate tax liability after credits. If both conditions are not met, the election is unavailable.

The election is made on a timely filed Form 706, including extensions. Once made, it is irrevocable. If the executor misses the filing deadline or fails to make the election on the return, the date-of-death values apply permanently.

When the alternate date applies

The most common scenario is a market decline after death. If the decedent died holding a portfolio of publicly traded securities and the market dropped significantly in the following six months, the alternate valuation date lets the estate lock in the lower values for estate tax purposes.

The same logic applies to any asset whose value declined: real estate in a falling market, a closely held business that lost a key customer, commodities that dropped in price. The election is most valuable when the estate is above the exemption threshold and the decline is large enough to produce meaningful tax savings.

Property disposed of within six months

If any estate asset is sold, distributed, exchanged, or otherwise disposed of during the six-month period, that asset is valued as of the date of disposition rather than the six-month date. This creates a hybrid: some assets are valued at the six-month date, others at their earlier disposition dates.

This rule has planning implications. If the executor distributes appreciated assets to beneficiaries before the six-month mark, those assets are valued at their distribution date, not the alternate date. The executor should coordinate distribution timing with the valuation election to avoid unintended results.

The all-or-nothing rule

Section 2032 is not a cherry-picking tool. The executor cannot elect the alternate date for assets that declined in value while keeping date-of-death values for assets that appreciated. The election applies to every asset in the gross estate. This means the executor must evaluate the net effect across the entire portfolio before making the election.

Basis consequences for beneficiaries

Under Section 1014, a beneficiary’s basis in inherited property equals the value used for estate tax purposes. If the executor elects the alternate valuation date, the basis for every inherited asset shifts to the alternate date value (or the disposition date value, for assets distributed or sold within six months).

This creates a direct tension. A lower estate value reduces estate tax, but it also gives beneficiaries a lower stepped-up basis, which means more capital gains tax when they sell. The analysis must weigh the estate tax savings against the aggregate capital gains exposure across all beneficiaries.

Interaction with portability (DSUE)

The alternate valuation date election can also affect the deceased spousal unused exclusion (DSUE) amount. A lower gross estate value reduces the DSUE available to the surviving spouse. In estates where the primary goal of filing the 706 is the portability election rather than reducing current estate tax, the alternate valuation date may work against the family’s long-term plan. We model both scenarios before recommending the election.

Wasting assets and accrued income

Section 2032 includes a special rule for property whose value is affected by the mere passage of time. For patents, installment obligations, annuities, and similar wasting assets, the alternate date value is adjusted to exclude any change attributable solely to the passage of time. The value reflects only market-driven changes, not the natural decline in a time-limited asset.

Accrued income items (dividends declared but not yet paid, interest accrued, rents receivable) are also subject to specific valuation rules under the regulations. These items must be separated from the underlying asset value when calculating the alternate date amount.

What we handle

• Modeling the estate tax savings vs. beneficiary basis trade-off for both valuation dates
• Tracking disposition dates for assets distributed or sold within the six-month window
• Coordinating the election with DSUE and portability planning
• Adjusting values for wasting assets, accrued income, and time-sensitive property
• Preparing the Form 706 with the election properly documented
• Communicating the basis consequences to beneficiaries and their preparers

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