Gift Tax Appraisals: What the IRS Expects From a Residential Valuation

A lifetime gift of residential real estate is valued for federal gift tax at fair market value on the date of the gift. That date is not “today,” and it is not the date the Form 709 is prepared. Attorneys, CPAs, fiduciaries, and owners who are considering a gift need a valuation that can be disclosed on the return — and that will still make sense if the return is examined years later.

This article explains what the IRS instructions and related rules say about residential real estate on Form 709. It is educational. It is not tax advice. An appraiser does not determine whether a gift tax return is required, compute tax, apply the annual exclusion or lifetime exclusion, or advise on gift-splitting, GST allocation, or discounts. Those determinations belong to the tax professional who prepares the return.

Fair Market Value on the Date of the Gift

The Instructions for Form 709 (2025) state that the value of a gift is the fair market value of the property on the date the gift is made. Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, when neither is forced to buy or to sell, and when both have reasonable knowledge of all relevant facts. Forced-sale price is not FMV. A sale in a market other than the one in which the item is most commonly sold to the public is not FMV. Location is taken into account when it is appropriate. For real property, the instructions identify an arm’s-length sale of the subject on or before the valuation date as generally the best indication of value, and otherwise the comparable-sales method, with adjustments for date of sale, size, condition, and location.

That definition is why a current listing, a broker’s CMA, or last year’s refinance appraisal is the wrong number for a gift made on a different date. If the deed or completed gift was March 12, the assignment is a retrospective market-value opinion as of March 12. Retrospective residential work is common for gift tax, just as it is for date-of-death estate appraisals. The methodology for valuing a past date is discussed separately in retrospective appraisals.

• Effective date: the date of the gift, documented from the deed, gift instrument, or other transfer evidence the tax professional provides.
• Interest appraised: the interest actually transferred — fee-simple, a fractional share, or another defined interest — not an assumed 100% interest if that is not what passed.
• Property type matching: the same discipline used in any residential assignment. A condominium is not valued from detached-house sales of similar living area.

When Form 709 Is Filed — and Why Appraisals Lag the Gift

Form 709 is an annual return. Generally it must be filed no earlier than January 1, but not later than April 15, of the year after the gift was made (the next business day if April 15 falls on a weekend or legal holiday). If the donor died during the year, the executor’s deadline is the earlier of the estate-tax due date (with extensions) or April 15 of the following year (or the extended gift-tax due date). Time to file can be extended automatically with a calendar-year income-tax extension (Form 4868 or Form 2350), or on Form 8892 if no income-tax extension is requested. An extension to file is not an extension to pay.

That calendar is why gift-tax appraisals are often ordered months after the transfer. The valuation date does not move. Market conditions, listings, and pending contracts after the gift date are not substitutes for the competitive set that was available as of the gift.

Annual Exclusion and Lifetime Exclusion — What the IRS Has Published

The first $19,000 of gifts of a present interest to each donee during calendar year 2025 is excluded in figuring taxable gifts. The IRS has published the same $19,000 per-donee annual exclusion for calendar year 2026. Present-interest gifts of $19,000 or less to a given donee generally do not, by themselves, require Form 709; future interests do not qualify for the annual exclusion and must be reported regardless of amount. For 2025, the annual exclusion for present-interest gifts to a spouse who is not a U.S. citizen is $190,000; for 2026 the IRS published $194,000. Confirm the current-year annual exclusion with the IRS or the tax advisor who will sign the return.

Sources: Instructions for Form 709 (2025); IRS tax-year 2026 inflation adjustments; IRS gift-tax FAQs.

The 2025 Form 709 instructions state that the applicable exclusion amount consists of the basic exclusion amount — $13,990,000 in 2025 — and, for a surviving spouse, any unused exclusion of the last deceased spouse if a timely portability election was made. For 2026, the IRS newsroom states that estates of decedents who die during 2026 have a basic exclusion amount of $15,000,000, and the IRS gift-tax FAQ states that Public Law 119-21 amends § 2010(c)(3) by increasing the basic exclusion amount to $15,000,000 for gifts for calendar year 2026. The lifetime exemption is set by statute and indexed; the tax professional computes the credit actually available to a given donor, including prior taxable gifts and any DSUE. An appraisal does not calculate remaining exclusion.

Adequate Disclosure, Qualified Appraisals, and Why a Thin Number Is Costly

To start the running of the statute of limitations for a gift, the gift must be adequately disclosed on a Form 709 (or an attached statement) filed for the year of the gift. In general, adequate disclosure includes a full and complete Form 709; a description of the transferred property and any consideration the donor received; the identity of, and relationship between, the donor and each donee; trust identification if the property is transferred in trust; and either a qualified appraisal or a detailed description of the method used to determine fair market value. See Regulations sections 301.6501(c)-1(e) and (f), which the 2025 Form 709 instructions cite for what constitutes a qualified appraisal and for the information required if no appraisal is provided.

That is the compliance reason a residential gift is often supported by a USPAP-compliant appraisal by a qualified appraiser rather than a one-line value. A real estate agent’s CMA is a marketing tool. It is not a qualified appraisal, and it does not meet the appraisal standards the regulations describe for adequate disclosure.

The same instructions describe valuation-understatement penalties that apply when a reported value causes an underpayment of tax. A substantial valuation understatement occurs when the reported value of property entered on Form 709 is 65% or less of the actual value. A gross valuation understatement occurs when the reported value is 40% or less of the actual value. Those thresholds are why a thin, unsupported number is a reporting risk — not a reason to aim high. The assignment is market value as of the gift date, supported by matched sales.

Adequate disclosure is what starts the statute of limitations on a gift. For residential real estate, that usually means a complete Form 709 plus either a qualified appraisal or a detailed, defensible description of how fair market value was determined as of the date of the gift — not a CMA and not a current-market shortcut.

Fractional Interests, Discounts, and Related-Party Transfers

If the value reported on Schedule A includes a discount for lack of marketability, a minority interest, a fractional interest in real estate, blockage, market absorption, or any other reason, Form 709 requires a “Yes” answer to the valuation-discounts question at the top of Schedule A, plus an attached explanation of the basis for the claimed discounts and the amount taken. This article does not recommend a discount percentage. Whether a discount is supportable, and in what amount, is a legal and valuation question for the tax professional and, when engaged, the appraiser of the specific interest transferred.

The gift tax also applies to sales or exchanges that are not made in the ordinary course of business when the value of what is received is less than the value of what is transferred. Intra-family transfers and related-party sales below fair market value can be gifts of the bargain element — the difference between FMV and the consideration paid. Reporting that element, if it is a gift, is a tax-return question. Measuring FMV of the real estate as of the transfer date is the appraisal question.

Joint tenancy, gifts in trust, QTIP, and GST issues can change what must be reported and whether an interest is a present or future interest. Those are beyond the scope of a residential appraisal. They belong in the Form 709 instructions and with the return preparer.

What a Residential Gift-Tax Appraisal Actually Contains

A defensible gift-tax appraisal of a house, condominium, or cooperative looks like other retrospective residential work, with the gift date locked as the effective date:

• Identification of the gift: the real property, the interest transferred, and the effective date supplied by counsel or the CPA.
• Physical inspection and description: dwelling type, above-grade living area, condition and quality, legal use, and site characteristics as of the gift date, with extraordinary assumptions disclosed if inspection is after the date.
• Comparable sales: closed sales that would have competed with the subject as of the gift date, adjusted for property type, size, condition, and location. Current listings after the gift do not replace that set.
• Reconciliation: a single market-value opinion for the interest appraised, not a range offered as a negotiating figure.
• USPAP compliance: a signed certification by a qualified appraiser. For IRS adequate-disclosure purposes, the regulations — not a broker form — define a qualified appraisal.

Gift tax is a transfer-tax reporting issue. It is related to, but not the same as, income-tax basis. Donees generally take a carryover basis; a later sale can produce capital-gain consequences that are analyzed separately. See the firm’s discussion of capital-gains appraisal work.

Final Thoughts

A gift of a residence is valued at fair market value on the date of the gift. Form 709 is generally due by April 15 of the following year. Adequate disclosure — a complete return plus a qualified appraisal or a detailed valuation-method description — is what starts the statute of limitations. A CMA is not that appraisal. A current-market number is not the gift-date number.

The appraiser’s role is a supportable residential value opinion as of the transfer date, prepared to USPAP and, when the return requires it, in a form that can be attached as a qualified appraisal. The tax professional’s role is the return: exclusions, credits, discounts, and whether a gift occurred at all. Keep those roles separate, and the file is easier to defend.

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