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Old 03-02-2012, 06:01 PM
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Inherited Jewelry - How to Calculate Capital Gains

Here's an inquiry. My father is interested in passing to me a valuable ring that belonged to my late mother, so I can sell it.
a) Can this be considered an inheritance from my mother if it was never reported as such, so as to avoid my father having to pay gift tax to give it to me?
b) Could we calculate the cost basis as Mom's date of death (2006) instead of the long-lost date of acquisition (1890s)? Otherwise, do we just have to consider the whole sale a capital gain? And:
c) If necessary, could it fit under my mother's (or possibly grandparents') unified credit, even though it was never reported as such?
Many thanks.



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Old 03-03-2012, 09:10 PM
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“a) Can this be considered an inheritance from my mother if it was never reported as such, so as to avoid my father having to pay gift tax to give it to me? “-->I guess it is a gift(the gift tax marital deduction allows for spouses to pass assets on to each other without being taxed. It is a 100 percent valued gift that can occur either during their lifetime or postmortem.The person receiving the gift has complete power and control over the asset given, its provided income and use once it has been given.) from your father that actually owns the ring(actually it is NOT your late mother that owns it but it is your father that owns it). An inheritance is a gratuitous benefit taken on a death and a gift is a gratuitous benefit taken otherwise than on a death.
“b) Could we calculate the cost basis as Mom's date of death (2006) instead of the long-lost date of acquisition (1890s)? Otherwise, do we just have to consider the whole sale a capital gain?”--->It depends on the situation; adj basis is a term for how much you have invested in something. Therefore, your basis in property you buy is the cost. If you acquire property as a gift, you have to track basis using some other information. The usual rule is that the basis of the gift-giver(your father in this case) transfers to the recipient(you). The tax treatment upon selling property is a capital gain(LTCG/LTCL in this case) or loss that depends upon whether the proceeds from the sale are higher or lower than the basis. But, you also want to know the fair market value of the given property at the time of the gift, 2012. You might have to substitute that amount for basis when determining gain or loss if the FMV(value in 2012; as your father’s basis in 2006 is same its original basis in 1890) is less than the gift-giver’s basis(basis in 2006). Your basis in gifted property is the basis of the gift-giver, in 2006 if the FMV at the time of the gift in 2012 is the same as or higher than that basis. For example, you were given a ring in 2012 with an FMV of $21,000. The donor's adjusted basis in 2006 was $20,000. The donor paid a gift tax of $500. Your basis is $20,500, the donor's adjusted basis plus the gift tax paid.


When the FMV in 2012 at the time of the gift is less than the gift-giver’s basis in 2006, your correct basis depends upon what happens when you eventually sell the property. Compare the amount you receive from selling to the gift-giver’s basis. If your sales price is higher, you have a gain calculated by using the gift-giver’s basis as your own basis. If you sell for less than the gift-giver’s basis, switch to using the FMV at the time of the gift as your basis to determine your loss. If you then have a gain when using the FMV as basis, your sale of the property is neither a taxable gain nor a taxable loss.For example, you received a ring as a gift. At the time of the gift in 2012, the ring had an FMV of $8,000. The donor's adjusted basis in 2006 was $10,000. After you received the ring, no events occurred to increase or decrease your basis. If you sell the ring for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis in 2006($10,000) at the time of the gift as your basis to figure gain. If you sell the land for $7,000, you will have a $1,000 loss because you must use the FMV in 2012($8,000) at the time of the gift as your basis to figure a loss. If the sales price is between $8,000 and $10,000, you have neither gain nor loss. For instance, if the sales price was $9,000 and you tried to figure a gain using the donor's adjusted basis in 2006($10,000), you would get a $1,000 loss. If you then tried to figure a loss using the FMV ($8,000), you would get a $1,000 gain.
“c) If necessary, could it fit under my mother's (or possibly grandparents') unified credit, even though it was never reported as such?”---->I do not think so;it ( as a gift under marital dedcution) is not subjec to wealth transfer tax/unifie credit. the gift given to your father from you late mother s subtracted from her gross estate as marital deduction. After the value of all assets owned by the estate, called the gross estate, has been determined, the estate can then claim deductions in order to reduce the value of the gross estate to arrive at what the IRS deems the taxable estate. Often, the largest and most prevalent deduction is the marital deduction. A married decedent can transfer any amount of assets to a spouse without paying any estate tax. As a result, any assets passing to the surviving spouse are deducted from gross estate.



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Old 03-06-2012, 07:32 AM
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Many thanks, Wnhough. Very helpful indeed.



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