How much something you cannot sell can cost?

Apparently a lot. According to the claims raised by the IRS, an item can be valued at more than 60 millions of dollars, while cannot be legally sold or transferred at all.

This sounds ridiculous, but it’s true, read here.

So what’s the issue here? Well, estate tax requires calculating the “fair market value” of the items in the deceased person’s estate, and paying the tax based on that value. This is because the heirs will have the “basis” (cost of the item, for tax purposes) at the fair market value at the time of the transfer, and will only pay taxes on the gain, when sold, on the difference between that value, and the actual sale price.

But if the heirs can never sell the inheritance, the IRS claim means that the family will pay millions of dollars on taxes, each time the next owner passes away, without any real legal possibility of disposing of the poisonous item.

This is not only the problem of the rich people; this concerns each and every one of us. The bottom line here is the fairness of taxation. If the IRS claim holds, the IRS will be able to claim any value it feels like for the estate and gift tax purposes.  You gave your old car to your adult son? Who cares if its KBB value is $5000 dollars, IRS may come and say “we think it’s worth $50000”. You made a donation to charity of an item appraised at $50000? IRS may come and say “no, we think its $5000”. In both cases you’ll have to pay significant taxes on the difference, and it’s not unheard of for people to give their cars to their family or charity.

First rule, when you’re giving a gift or a charitable donation of an item of significant value (over $5000), you have to have a professional appraisal done on it. Even for lower value items, you should keep all the information necessary to determine their value. What happens if the items cannot be legally sold? We’ll have to wait and see how it ends with the heirs of Mrs. Sonnabend.

Your Little Advisor

This entry was posted in News and Politics, Taxes - General and tagged , . Bookmark the permalink.

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