Accurate fair market valuation is critical when calculating capital gains tax. Errors in valuation can lead to overstated gains, unexpected tax bills or even audit risk. By understanding common pitfalls, you can tighten your process and ensure your capital gains report reflects true value.

Relying on Incomplete Comparable Sales

One of the biggest mistakes is selecting comparables that don’t truly match your property. Using sales outside your neighborhood or those with vastly different lot sizes or amenities, skews your baseline. Always choose at least three recent sales of similar homes within a close radius and adjust for clear differences like square footage or garage count.

Overlooking Market Timing

Property markets shift, sometimes rapidly. Applying comparable sales from six months ago in a rising market will understate value; using older sales in a cooling market will overstate it. Tie your comparables to the same marketing period—ideally within 90 days of your valuation date—to reflect current demand & pricing trends. Looking for a home appraiser near me? Click here to book your local expert now!

Misadjusting Property Features

Adjustments bridge the gap between your subject property and its comparables, but miscalculations here cause big swings. Common errors include overvaluing a kitchen remodel or undervaluing an extra bathroom. Base your adjustments on local per‑feature costs—what that upgrade actually adds in your market—rather than on generic national figures.

Neglecting Depreciation and Repair Factors

Assuming a freshly painted house and one requiring a full repaint carry equal value is a misstep. Wear‑and‑tear, deferred maintenance & functional obsolescence cut into fair market value. Have a professional inspector document needed repairs and factor the cost of those repairs into your valuation.

Skipping Documentation of Valuation Assumptions

Failure to record your assumptions—why you chose certain comparables, how you calculated adjustments and which market indicators you tracked—leaves your valuation open to challenge. Keep a detailed audit trail: notes on each comparable, copies of sales data and justification for every adjustment. This record not only supports your figures but also speeds resolution if questions arise.

When you avoid these mistakes, your capital gains calculation stands on solid ground. Rigorous comparable selection, precise adjustments, market‑timely data, attention to property condition and thorough documentation together yield a defensible fair market value. Applying these steps will minimize surprises at tax time & strengthen your confidence in the numbers.

Author Resource:

Rick Lopez writes about capital gains, home and property appraisals with extensive expertise. You can find more thoughts at appraisal companies blog.