How One California Family Saved $343,000 in Taxes with a $449 Appraisal
The step-up in basis is one of the most powerful tax benefits in federal law, but it can be difficult to appreciate in the abstract. This anonymized case study — based on a typical estate we see in our practice — walks through the actual math of what happens when a California home is inherited, with and without a date-of-death appraisal.
The Situation
Margaret purchased a three-bedroom, two-bathroom ranch home in a San Diego suburb in 1985 for $150,000. She lived there until she passed away in January 2026. Her daughter Karen is the sole beneficiary of the trust.
At the time of Margaret's death, the home's fair market value — as determined by a qualified date-of-death appraisal — is $1,200,000. Karen plans to sell the property.
Without a Date-of-Death Appraisal
If Karen sells for $1,200,000 and cannot prove a stepped-up basis because she never obtained an appraisal, the IRS can assess capital gains on the full historical appreciation:
Sale price: $1,200,000
Original purchase price (1985): $150,000
Taxable gain: $1,050,000
Federal capital gains tax (20%): $210,000
California state income tax (~9.3%): $97,650
Net Investment Income Tax (3.8%): $39,900
Total potential tax liability: ~$347,550
The IRS can also assess a 20% accuracy-related penalty ($69,510) and compounding interest if the return is audited and the step-up is denied.
With the Step-Up (Appraisal Obtained)
Karen orders a date-of-death appraisal for $449, which establishes the fair market value at $1,200,000. She sells three months later for $1,215,000:
Sale price: $1,215,000
Stepped-up basis: $1,200,000
Taxable gain: $15,000
Federal capital gains tax (15%): $2,250
California state income tax (~9.3%): $1,395
Total tax liability: ~$3,645
Tax savings: approximately $343,905. That is a return of roughly 766-to-1 on the cost of the appraisal.
What About California's Double Step-Up?
Now consider a variation: Margaret was married and the home was community property. Her husband James passed first in 2020, but the family never obtained a date-of-death appraisal at that time.
When Margaret passes in 2026, only her half of the community property receives the step-up — unless a retroactive appraisal documents the value at James's 2020 date of death. If the home was worth $950,000 when James died, a retrospective appraisal for James establishes the full community property double step-up to $950,000 at that time. When Margaret then passes, a second appraisal resets the full basis to $1,200,000.
Without the 2020 appraisal, Karen's basis could be limited to a blend of the original purchase price and the 2026 value — costing her tens of thousands of dollars.
The lesson: In California, get a date-of-death appraisal every time a co-owner of community property passes away, even if the surviving spouse has no plans to sell.
The Proposition 19 Factor
Karen does not plan to live in the home. Under Proposition 19, the property is fully reassessed at the date-of-death market value:
Prior Prop 13 assessed value: $210,000
New assessed value: $1,200,000
Prior annual property tax: ~$2,310
New annual property tax: ~$13,200
Annual increase: ~$10,890
If Karen kept the home as a rental, this reassessment would dramatically affect cash flow. The date-of-death appraisal determines both the stepped-up basis for federal taxes and the reassessment figure for California property taxes.
Appraiser’s Take
This is the type of estate we see every day. The numbers change — sometimes the appreciation is $300,000, sometimes it's $3 million — but the mechanics are always the same. The date-of-death appraisal is a small investment that protects against an enormous potential tax liability. Even for modest estates with properties worth $500,000–$800,000, the step-up typically saves heirs $30,000–$80,000 in capital gains taxes.
For a comprehensive explanation of the step-up in basis, California's community property rules, and IRS requirements, see our complete Step-Up in Basis Guide.
Need a Date-of-Death Appraisal?
Protect your step-up in basis with a USPAP-compliant desktop appraisal. Flat-rate pricing starting at $299, serving all 58 California counties.
Order Your Appraisal