INSIGHT

Commercial Real Estate Valuation for Estate and Gift Tax Planning

Zac R. Blechman, Kemp Moyer • October 15, 2026

Services: Commercial Real Estate Valuation Services

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For families and individuals engaged in generational wealth planning, commercial real estate often represents one of the largest assets in such an estate. When commercial and investment property passes through an estate or transfers as a gift, its value can materially impact a potential tax bill. When the real estate is held through an LLC, partnership, or other entity, the value of the underlying property is only the starting point. The ownership interest itself is the asset requiring a qualified appraisal for estate or gift tax reporting purposes. 

This article looks at why a qualified commercial real estate valuation matters for estate and gift tax reporting, what the process involves, and how families can avoid certain missteps that can draw IRS attention. The objective is not simply to report a value, but to acknowledge that the IRS requires qualified appraisal support for the values reported in the tax filing, which must meet applicable standards to withstand scrutiny if the return is reviewed. 

Why Valuation Accuracy Matters for Estate & Gift Tax Purposes 

For federal estate and gift tax purposes, property must be reported at fair market value as of the applicable valuation date. That date might be: 

• the date of death  
• the alternate valuation date, if available and elected for estate reporting  
• the date a lifetime gift is made  

Commercial property values are driven by current and prospective income generation, property quality and condition, as well as location and local market trends. Interest rates and capital-market conditions also affect investor returns and capitalization rates, which impact appraised values. Because gift and estate tax purposes typically require retrospective valuations, careful consideration of market conditions as of the specific valuation date is critical. This is where the difference between CRE valuations vs. appraisals matters: a broker opinion of value, informal estimate or appraisal prepared for another purpose is technically not a qualified appraisal and often does not satisfy the applicable tax reporting requirements.

What a Qualified Appraisal Needs to Include 

A qualified appraisal is required to be completed by a qualified appraiser and it must comply with USPAP, applicable state requirements as well as additional guidelines defined by the IRS. At its core, the appraisal will define: 

• the property and property rights being appraised  
• the effective date, intended use, intended users, and applicable definition of fair market value 
• the property’s highest and best use  
• the scope of work needed to develop credible results  

The appraiser then applies applicable valuation methods appropriate for the assignment. The three general approaches are sales comparison, income capitalization, and cost. Depending on the property and available evidence, one, two or all three may apply. A qualified appraisal does not automatically require any specific approach but do require qualified professional judgement. 

Families sometimes assume a recent appraisal obtained for a refinancing process will work for estate and gifting purposes, but that is likely not the case. The appropriate scope and reporting requirements for any appraisal depend on several factors: the intended use and user, the definition of value appropriate to that use as of a specific valuation date, and the property rights defined in the appraisal – not simply whether the appraisal was prepared for a lender or a taxpayer. 

Choosing the Right Valuation Date 

Qualified appraisals needed for estate tax reporting purposes are not always based on a date of death. Executors may elect to use the alternate valuation date six months after death if the estate meets the applicable requirements and the election is made. That election applies to the estate reporting as a whole, not just the real estate. A property owner planning a lifetime gift faces a similar timing question, since the value on the date the gift is made is generally the appropriate value for gift tax purposes. 

Markets shift. A property valued during a down market, when vacancy is atypically high, can look very different compared to the same property valued during a market in expansion. Consideration for the appropriate appraisal date, and the options that may exist, can optimize potential taxes that will be incurred. 

Valuing LLC & Partnership Interests 

When commercial real estate is held through an LLC or partnership, the valuation process begins with the underlying property. That underlying real estate property value serves as the starting point in the entity analysis, which accounts for any applicable debt against the property, along with cash, other assets and liabilities, and governing documents – all considered in the context of the specific ownership rights being valued. 

The value of this ownership equity interest reported on the tax return is not valued simply by multiplying the property’s value by the ownership percentage. Due to the complexity of valuing an entity of this nature, the qualified appraisal considers the specific rights and limitations of the ownership interest, including: 

• voting and management rights  
• distribution rights and the ability to compel a sale or liquidation  
• transfer restrictions and liquidity  
• market evidence supporting any discount for lack of control or marketability  

Coordinating the qualified appraisals of the real estate and entity ensures that any value relied upon in the tax filing is based on consistent valuation dates, and that the qualified appraisers are aligned on the property assumptions, debt, ownership, and any financial information that could impact the value of the ownership equity interest and/or property itself. This coordinated approach also provides the benefit that both appraisers adhere to the reporting requirements necessary in the event the filing is ever examined by the IRS. 

Coordinating Valuation with the Broader Estate Plan 

Valuation for estate planning should begin with the underlying assets and follow the ownership structure through each holding entity to the interest reported on the return.This generally requires appraising the underlying real estate, identifying entity-level assets and liabilities, reconciling appraisal inputs with ownership records, and valuing the applicable LLC or partnership interest. 

Following a death, the tax team should also evaluate whether a Section 754 election and related Section 743(b) basis adjustment may be available. Depending on the facts, the adjustment may provide beneficiaries with future income tax benefits through additional depreciation or amortization or reduced gain on a future sale. The availability and effect of the election should be determined by the partnership’s tax advisor. 

Working with BPM 

BPM’s commercial real estate valuation services provide an integrated approach to these needs, encompassing both the underlying commercial real estate appraisal and the qualified appraisal ultimately needed to determine the value of an ownership interest in the entity that holds title to the property. This integrated approach is also tailored to establish a coordinated support system that works collaboratively not only with BPM’s estate and trust tax specialists, but also with estate attorneys and any other advisors supporting the family during these pivotal moments.  

When life brings significant change or uncertainty, BPM works alongside families to navigate the financial decisions that come with it. If you’re planning a lifetime gift, administering an estate, or evaluating a transfer of a real estate holding entity, contact BPM to discuss the appropriate valuation scope and timing.