My father died in 2010, and my mother died last August. They lived a modest lifestyle because Dad never earned a lot of money. Mother had a valuable ring with a strange history. I remember hearing stories about it as a child that indicated a mystery. Sometimes, it was about how she found it at a bus stop. Other times, especially when she wore it at some special occasion, the tale was of a long family history. I am an only child. Neither my wife nor I particularly like it, and we'd like to sell it. We got two appraisals, $18,000 and $16,000, so it's probably worth somewhere in between. We intend to use the proceeds to help buy a new car. Will we owe income taxes on the sale?
WHAT HARRY SAYS: Based on what you remember about its history, I feel that she found it, and she invented the family history. In any event, the basis for your sale is the value at the date of her death. There has not been much movement in diamond prices since then, so I would show its cost as the value you get for it. As a result, there will be no taxable gain. However, report the gain on your 1040 on Schedule 8949 with the word "Inherited" in the column for acquisition date. Sale of inherited property is always treated as a long-term sale, regardless of how long an heir has held it.