By ruling of 19 June 2013 (case no. II R 20/12) the Federal Fiscal Court (Bundesfinanzhof) clarified that the costs of an expert appraisal report for property valuation in an inheritance case are tax-deductible. Anyone required to commission an appraisal report in the event of inheritance can claim the costs as an estate liability against the tax office – thereby reducing inheritance tax. This is an option that is still too rarely used in practice.

The case

After the death of his uncle, a sole heir commissioned an expert appraisal report to determine the market value of a property belonging to the estate. The costs amounted to EUR 2,593.47. The tax office refused to allow their deduction as an estate liability. It took the view that such valuer's costs were not expenses directly connected with the acquisition, but merely costs incurred in preparation for a later sale or tax dispute.

The decision

The Federal Fiscal Court overturned the decision of the fiscal court and ruled in favor of the heir. The costs for an expert appraisal report for property valuation constituted estate settlement costs within the meaning of Section 10(5) No. 3 of the German Inheritance Tax Act (ErbStG) – and are therefore deductible as an estate liability. The decisive factor is that they arose in close temporal and substantive connection with the acquisition by reason of death .

By contrast, it is not decisive whether the findings from the appraisal report are later also used for sale purposes. The court emphasized: determining the value of a property is a typical part of settling an estate. An heir who is not familiar with the inherited property must have its value determined – this is not a voluntary measure, but a necessary part of settling the estate.

What this means for heirs

The ruling opens up an option often overlooked in practice: anyone who commissions an expert appraisal report for an inherited property can claim the costs as an estate liability with the tax office – thereby reducing inheritance tax. This applies regardless of whether the appraisal report ultimately results in a lower assessed property value or not.

The prerequisite is that the appraisal report is prepared close in time to the inheritance and that the costs incurred bear a clear relation to the settlement of the estate. An appraisal report commissioned only years later and for other reasons would likely no longer satisfy this connection.

The decision is particularly relevant in combination with Section 198 of the German Valuation Act (BewG): anyone who commissions an appraisal report anyway to prove a lower fair market value can use its costs twice – as proof for the tax office and as a deductible estate liability.

Conclusion

BFH II R 20/12 makes clear: valuer's costs for real estate valuation in an inheritance case are not private expenses, but tax-recognized estate settlement costs. Anyone who fails to claim this deduction is giving away money. When commissioning an appraisal report, the temporal connection to the inheritance should be documented from the outset, and the deduction should be explicitly requested in the inheritance tax assessment notice.