What is an Estate Tax?

The article below is up to date based on the latest tax laws. It is accurate for your 2019 taxes (filed in 2020) and 2018 taxes, which should be filed by the April 15th, 2019 (or October 2019 with filed extension) deadline

Are you hosting an estate sale this summer? It may be because a loved one passed away and you need to sale their belongings, or it could be on account of divorce, bankruptcy, downsizing, or any number of other reasons that make it necessary to sell some items.

In short, any sale of a large number of household goods is an estate sale, and it is generally handled by a professional estate sales company. Many of those companies require that the combined value of the goods being sold is above a minimum dollar amount, which could be as much as $10,000.

If the goods are being sold on behalf of the estate of someone who passed away, then the sale is reported on the estate income tax return of the deceased person. Generally, the tax basis or cost for determining gain or loss on the sale is the value of the items on the date the owner died. If the estate sale takes place within the next few months after death, there may not be any gain or loss to report on the sale. For example, if an inherited dining room table originally cost $2,500, but the fair market value at the date of death is $500 and it sold in the estate sale a few months after death for $500, this would result in no gain or loss since the tax basis or cost used to calculate gain or loss is $500.

If the goods being sold belong to you, then you need to report the sale on your tax return in the year of sale. If you purchased the goods being sold, then your tax basis is what you paid for them originally. If you received the goods as a gift, there may be gift tax; your tax basis or cost used to calculate gain or loss is what the person who gave them to you paid for them. If you inherited the goods from someone, your inheritance tax basis is the value when that person passed away.

When the sales price is less than your tax basis, that will result in a loss, that loss will be considered to be personal and not tax-deductible. If there is a gain on the sale of the goods, then you can deduct the costs of the sale from the gain. The costs include fees charged by the estate sale company, advertising costs, fees paid to specialists who appraised the items, etc.

If there are goods left over that didn’t sell, you may be able to take a charitable deduction for the value of the items that you donate to a recognized charitable organization. For those items that are carted off by a neighbor or your Uncle Al for free, sorry – there’s no tax deduction for giving goods away to non-charities.

Don’t worry about knowing these tax rules. TurboTax asks you simple questions about you and gives you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.

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