KO Appraisal
Guide

Gift Tax Appraisal for Form 709

A gift tax appraisal establishes the fair market value of real property as of the date it was transferred, for reporting on Form 709, the federal gift and generation-skipping transfer tax return. The appraisal does two jobs: it fixes the amount of the gift, and, when attached to a return that otherwise satisfies the adequate disclosure rules of Treas. Reg. § 301.6501(c)-1(f), it supports the start of the statute of limitations, so the IRS cannot revalue the transfer years later. Adequate disclosure is a property of the filed return; an appraisal standing alone starts no clock. Form 709 is generally due April 15 of the year following the gift, extendable to October 15. If the donor dies, the return is due no later than the earlier of that gift tax deadline and the due date, including extensions, of the donor's federal estate tax return. California imposes no gift tax; this is federal only.

Why the appraisal is really about the statute of limitations

A gift tax appraisal is easy to think of purely in terms of the exclusion amount. The more consequential issue is the clock. The three-year assessment period of IRC § 6501(a) runs against a gift only if the gift is adequately disclosed on the return. IRC § 6501(c)(9) is the statutory hook: gift tax on a gift that was required to be shown on a Form 709 and was not adequately disclosed may be assessed at any time. Treas. Reg. § 301.6501(c)-1(f) implements that rule. Where disclosure fails, the limitations period never starts and the IRS can revalue the transfer decades later, including on audit of the donor's estate.

Treas. Reg. § 301.6501(c)-1(f)(2) lists what the return must contain:

  • a description of the transferred property and any consideration received by the transferor
  • the identity of, and relationship between, the transferor and each transferee
  • if the property is transferred in trust, the trust's tax identification number and a brief description of the terms of the trust, or, in lieu of the description, a copy of the trust instrument
  • a detailed description of the method used to determine fair market value, including the financial data relied on and a description of any discounts claimed in valuing the property (the regulation names blockage, minority or fractional interests, and lack of marketability)
  • a statement describing any position taken that is contrary to any proposed, temporary, or final Treasury regulation or revenue ruling published at the time of the transfer

The appraisal route, and what disclosure buys later

Paragraph (f)(3), headed "Submission of appraisals in lieu of the information required under paragraph (f)(2)(iv) of this section," provides that an appraisal meeting that paragraph's requirements, as to the appraiser and as to the contents of the report, satisfies (f)(2)(iv) in place of the description of the valuation method. Note that this is not the "qualified appraisal by a qualified appraiser" standard of IRC § 170(f)(11) and Treas. Reg. § 1.170A-17, which governs charitable contribution deductions and imposes a different list of requirements. These are different standards, and only the (f)(3) list is relevant here.

The Tax Court has held that substantial compliance with the disclosure regulation can be enough to start the limitations period: Schlapfer v. Commissioner, T.C. Memo. 2023-65. Substantial compliance is a litigating position, not a plan.

There is a related payoff at death: once a gift has been adequately disclosed and the gift tax limitations period has run, IRC § 2001(f) fixes its value at the value finally determined for gift tax purposes, so the IRS cannot revalue it as an adjusted taxable gift when computing the estate tax. That protection does not extend to property brought back into the gross estate under IRC §§ 2036-2038; that property is generally valued as of the date of death.

What is being valued

A gift transfer of California real estate is not always a clean conveyance of an entire fee. These patterns each raise their own valuation questions.

  • A fractional or undivided interest transferred to one or more children, where a fractional-interest discount reflecting the cost, delay, and marketability impairment of a partition is at issue. See Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982), an estate tax case allowing a discount for an undivided interest in real property, valued without regard to other family-held interests
  • A transfer of the entire property with a retained life estate or retained occupancy, which carries IRC § 2036 inclusion consequences your attorney must address
  • Contributions of real property to a family LLC or partnership, where my real property appraisal is the input to a separate valuation of the entity interest actually gifted
  • A sale to a family member or trust below market, where the bargain element is the gift
  • Funding a grantor retained annuity trust, an intentionally defective grantor trust, or a qualified personal residence trust, where the initial property value sets the entire structure

Basis: the difference between a gift and an inheritance

A gift and an inheritance produce opposite basis results, and the two are easy to confuse. Property received by gift takes a carryover basis under IRC § 1015, generally the donor's adjusted basis, with a special rule providing that, for determining loss, basis is the fair market value at the time of the gift if that is lower. Property acquired from a decedent instead generally takes a basis equal to date-of-death fair market value under IRC § 1014.

For long-held California real estate with a very low basis, giving the property away during life can transfer an embedded capital gain to the recipient that would have been erased at death. That is a decision for the client's CPA and estate attorney. My role is to supply a defensible value, and to make sure the fair market value at the date of gift is documented, because under § 1015 that figure can matter for computing loss on a later sale.

Timing, filing, and mechanics

Form 709 is generally due April 15 following the calendar year of the gift. An extension of time to file the donor's income tax return on Form 4868 also extends the 709; an extension for the gift tax return alone is requested on Form 8892. Extensions extend the time to file, not the time to pay. If the donor dies during the year, IRC § 6075(b)(3) can move the deadline up. Per the Form 709 instructions, the 709 for that year is due no later than the earlier of two dates: the ordinary April 15 or extended gift tax due date, or the due date, including extensions, of the donor's estate tax return, which can fall well before the following April 15.

The annual exclusion per donee and the lifetime basic exclusion are both indexed annually, and split-gift elections between spouses change the arithmetic. I do not publish those figures because they move; get them from your CPA for the year of the gift.

The effective date of my appraisal is the date the gift was completed, typically the date the deed was executed and delivered, which is a legal question your attorney determines, not a date I choose. Where a gift was made in a prior year and no appraisal was obtained, I can prepare a retrospective appraisal for the correct effective date.

Credentials and engagement

If the appraisal route under Treas. Reg. § 301.6501(c)-1(f)(3) is used, the regulation asks that the appraiser hold himself or herself out to the public as an appraiser or perform appraisals on a regular basis; be qualified to appraise the type of property being valued, as shown by the background, experience, education, and membership, if any, in professional appraisal associations described in the appraisal itself; and not be the donor, the donee, a member of the family of either (as defined in IRC § 2032A(e)(2)), or any person employed by them. The regulation also specifies what the report must contain: the date of the transfer, the date on which the transferred property was appraised, and the purpose of the appraisal; a description of the property; the appraisal process employed and the assumptions and limiting conditions used; and the specific basis for the valuation, such as comparable sales.

I am Kevin O'Brien, MAI, SRA. I hold a California Certified General Real Estate Appraiser certificate, #3005065, issued by the California Bureau of Real Estate Appraisers, and I appear on the ASC National Registry. Appraiser credentials are state-issued; I accept California property only.

I founded KO Appraisal in 2023. Before that I was a Senior Real Estate Appraiser at JP Morgan Chase and an independent fee appraiser at MVT Appraisal. That work covered condemnation, estates, financing, and due diligence support for accountants, investment firms, law firms, lenders, and private and public agencies, across neighborhood and community shopping centers, apartment complexes, single- and multi-tenanted industrial buildings, low- to high-rise office buildings, mixed-use facilities, and vacant land.

Standard turnaround is one to three weeks. Deposition and expert witness testimony are available. Residential 760-685-8036, commercial (619) 704-7070; office at 600 W Broadway, San Diego, CA 92101.

Common questions

I gave my daughter a fractional interest in a house and the discounted value is under the annual exclusion. Do I need an appraisal?
Whether the gift falls inside the annual exclusion depends on the value, and the value is exactly what is unsettled when a fractional-interest discount is in play. Without an appraisal you cannot show which side of the line you are on. A gift tax return is not legally required for a present-interest gift that falls within the annual exclusion, and nothing requires a return merely because a discount is claimed. Filing anyway is how you start the three-year clock: without a filed, adequately disclosed return, IRC § 6501(c)(9) leaves the IRS free to revalue the interest at any time, including on audit of your estate. That subsection also tests whether a gift was required to be shown on the return without regard to section 2503(b), so the annual exclusion is disregarded in answering that question. Confirm with your CPA whether a Form 709 is required for the year; if one is, the value should be appraised.
What happens if I file the return but do not attach an appraisal?
The return can still adequately disclose the gift if it satisfies Treas. Reg. § 301.6501(c)-1(f)(2), including the detailed description of the valuation method required by (f)(2)(iv). The appraisal route under (f)(3) is the safer path because it is an express safe harbor: the regulation provides that the requirements of paragraph (f)(2)(iv) "will be satisfied if the donor submits an appraisal" that meets the (f)(3) list. That list is a closed checklist, and meeting it satisfies (f)(2)(iv) on the regulation's own terms, rather than leaving a narrative description to be judged adequate or inadequate after the fact. Without adequate disclosure of some kind, the limitations period does not begin and the value stays open indefinitely.
Can I use the same appraisal for the gift and later for the estate?
No. Value is tied to an effective date. A gift appraisal is as of the date of the gift; an estate appraisal is as of the date of death. Those are different assignments with different data sets, even for the same property. What can carry forward is the workfile and the property knowledge from the earlier assignment.
Does California tax the gift?
No. California repealed its inheritance and gift taxes by voter initiative in 1982 and has not reinstated them. The federal gift tax still applies. Separately, a gift of California real property can trigger property tax reassessment unless an exclusion applies: Proposition 19's parent-child exclusion under Rev. & Tax. Code § 63.2, or one of the other statutory exclusions such as interspousal transfers (§ 63), transfers to a revocable trust (§ 62(d)), or transfers to a legal entity that result solely in a change in the method of holding title with proportional interests unchanged (§ 62(a)(2)). That is a county assessor question, entirely apart from the gift tax return.
Who wrote this Kevin O'Brien, MAI, SRA. California Certified General Real Estate Appraiser #3005065, issued by the California Bureau of Real Estate Appraisers (BREA). Practicing in San Diego. This page reflects how these assignments are actually handled, not a summary of other people's summaries.
Where this applies Appraiser licensing is state-specific, there is no national appraisal licence, so appraisal engagements here are California properties, primarily San Diego County. The valuation methodology and the federal tax rules described above apply anywhere in the United States; if your property is in another state, you need an appraiser credentialed there, and this page should still tell you what to ask them for.

Sources

Every statutory and regulatory claim on this page traces to one of the following. Where a source could not be confirmed, the claim was removed rather than softened.

  1. IRC § 2501 (imposition of the federal gift tax); IRC § 2503(b) (annual exclusion for present-interest gifts, indexed for inflation)
  2. IRC § 2001(f) (where the gift tax limitations period has run on an adequately disclosed gift, its value for estate tax computation purposes is the value finally determined for gift tax purposes)
  3. IRC § 6501(a) (general three-year assessment period)
  4. IRC § 6501(c)(9) (gift tax on a gift required to be shown on a return and not adequately disclosed may be assessed at any time; whether the gift was required to be shown is tested without regard to section 2503(b))
  5. Treas. Reg. § 301.6501(c)-1(f)(2) (information the return must contain for a transfer to be adequately disclosed); § 301.6501(c)-1(f)(3) (submission of appraisals in lieu of the information required under (f)(2)(iv), with appraiser and report requirements)
  6. IRC § 170(f)(11) and Treas. Reg. § 1.170A-17 (qualified appraisal and qualified appraiser for charitable contribution deductions; a different standard from Treas. Reg. § 301.6501(c)-1(f)(3))
  7. IRC § 2032A(e)(2) (definition of member of the family, incorporated by Treas. Reg. § 301.6501(c)-1(f)(3)(i)(C))
  8. Schlapfer v. Commissioner, T.C. Memo. 2023-65 (substantial compliance with the adequate disclosure regulation was sufficient to start the gift tax limitations period)
  9. IRC § 1015(a) (carryover basis for property acquired by gift; for determining loss, basis is limited to fair market value at the time of the gift if lower)
  10. IRC § 1014(a) (basis of property acquired from a decedent is generally its fair market value at the date of death, or, if an election under IRC § 2032 is made, its value at the alternate valuation date; the contrast to § 1015)
  11. IRC §§ 2036-2038 (gross estate inclusion for property transferred with a retained life estate or retained possession or enjoyment (§ 2036), transfers taking effect at death (§ 2037), and revocable transfers (§ 2038))
  12. IRC § 6075(b) (due date for Form 709; under (b)(3), for the calendar year that includes the date of the donor's death, the return is due no later than the time, including extensions, for filing the donor's estate tax return)
  13. IRS Form 709 and Instructions (for the year of the donor's death, the return is due no later than the earlier of the due date, with extensions, for the donor's estate tax return, or the April 15 or extended gift tax due date); Form 8892 (extension of time to file Form 709); Form 4868 (income tax extension, which also extends the time to file Form 709)
  14. Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982) (estate tax case allowing a fractional-interest discount for an undivided interest in real property, valued without regard to other family-held interests)
  15. Cal. Rev. & Tax. Code § 63.2 (Proposition 19 parent-child and grandparent-grandchild exclusion for a family home or family farm); § 63 (interspousal transfers); § 62(d) (transfers into a revocable trust); § 62(a)(2) (transfers resulting solely in a change in the method of holding title, proportional interests unchanged)
  16. Cal. Bus. & Prof. Code § 11300 et seq. (Real Estate Appraisers' Licensing and Certification Law, administered by the California Bureau of Real Estate Appraisers)

Related reading

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