Today TaxMama hears from Tarquin in New Orleans, with this problem. “I inherited a coin collection. The estimated basis I got was $70,000. But the collection sold for $90,000 a few months later. I calculate that I now owe $5,600 in capital gains taxes. But I know that coin prices have been falling. Therefore, the estimated basis is wrong. Can I revise my paperwork to correct the error, or am I stuck paying 28% capital gains tax on every dollar the estimate was low?”
In a nutshell, you have three choices on the dates you can use to value the coin collection.
1) Date of death.
2) 6 months from the date of death (the alternate valuation date)
3) Or the date the collection was sold, if it was less than 6 months (another alternate valuation date).
Note: to use the alternate valuation date, you have to use the value at that date for all the assets of the estate AND the value of the estate is less that it was at date of death. http://www.irs.gov/pub/irs-pdf/i706.pdf
With that being said, I don’t understand why you want to report a lower value for basis (tax cost) the coin collection? The lower the basis, the higher your capital gains will be. After all, the selling price doesn’t change. You still sold it for that $90,000.
Be grateful you got an $84,400 gift – that was so easy to turn into cash.
Of course, if you want to invest some more money, you could always get a written, professional appraisal of the coin collection that jives more closely with the sale price. After all, if you could sell it for $90,000 only a few months later, wouldn’t it have been worth close to $90,000 at the date of death? If you do this, and the estate return has been filed, you may need to amend the estate return. Which could open it up to audit.
And remember, you can find answers to all kinds of questions about inheritances and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Form 706 – Instructions :: The Estate Tax Return