Potential Tax Liability

The Federal Inheritance Tax Threshold is $625,000.

Consistent with earlier comments in the thread there is no such thing as a Federal Inheritance Tax, meaning that heirs do not have to pay Federal tax on their inheritance. There is a Federal Estate Tax, which is unified with the Gift Tax. The current Estate Tax threshold is $5.45 million, as I mentioned earlier. (See "Which Estates Must File" on page 2 of "Instructions for Form 706" at the IRS website. Also, as stated on page 1 of that document, "the basic exclusion amount is $5,450,000" ). The threshold was $625,000 in 1998.

You inherited a rare Amplifier that was appraised at $20,000 at the time of inheritance. Some Audiophile on Audiogon purchased it for $25,000. You are required to pay Income Tax on the $5,000 profit.

To be precise, I believe that the tax on the $5,000 would be levied based on long-term capital gains rates, not on ordinary income rates.

Regards,
-- Al

prpixel

Do you live in NE, IA, KY, PA, NJ or DE? If not, then you’re good. NJ officially killed it’s Inheritance/Estate tax on November 1, 2016. It’s real easy to find out, just Google "inheritance tax (state)"

No, NJ has not ended the inheritance tax. You’re completely mistaken. The state did repeal the estate tax. But the estate tax and the inheritance tax are two different things.

If you sell an item for more than the appraised value, or last purchase value, then you are required to pay Income Tax on the profit

That is also completely mistaken. You might be liable for capital gains tax, but not income tax. Again, they are two different things, and are taxed at different rates. Arguably, if buying and selling audio equipment was your livelihood, you would be liable for income tax. But in that case, your calculation of "profit" is faulty, because the earner would deduct from what you call "profit" all of his expenses: the cost of listing the ad, rent, phone, insurance, and so on.

You made $60k. Pay your accountant $200!

To be precise, again, I should add one more point regarding the fact that there is no Federal Inheritance Tax. Although heirs don’t have to pay Federal tax on what they receive from the decedent’s assets as they existed on the date of death, under many circumstances heirs may have to pay tax on whatever share they receive of income that may be earned by the estate subsequent to the decedent’s passing. That falls under what is known as the Estate Income Tax (for which the executor files Form 1041 if necessary, and it often will be necessary since the filing threshold is $600), as opposed to the Estate Tax (for which the executor files Form 706 if necessary, and it rarely will be necessary since the filing threshold is $5.45 million) :-)

Regards,
-- Al

This is getting very repetitive. In the unlikely event that you receive an inquiry from the I.R.S., or a Notice of Audit, you should hire a tax attorney or C.P.A. at that time. Period.

---Steve