An inquiry: After my mother died, a valuable ring got passed to me. We never officially reported it as an inheritance (and it may legally be the property of my father). For us to sell it legally, is it necessary first to report it as some sort of inheritance (from my mother) or gift (from my father) and thus have it taxed? If so, what would be the most tax effective way to do this? (I omit from this analysis the capital gains taxes that will follow the sale.) Any help would be greatly appreciated.

How much is the ring worth? The rest of the estate? What is the basis of the ring (what was paid for or the value at the time of death)?

Adam
Accountant Wilmington NC

The ring could be anywhere from 30 to 90K (unappraised as of now, but definitely past the 13K yearly gift tax exclusion), the estate essentially was shared with my father (still living) and is north of a million, and the basis is lost to history over a hundred years ago. Thanks.

One more relevant question. When did she die? Did the executor file any sort of estate income or estate tax return (neither one might not have been required).

Adam
Accountant Wilmington NC

Mom died in August of 2006. I believe her holdings, since they were jointly owned by my father, didn't necessitate an estate tax return.

It sounds as if the ring, unless specified in the will, is legally the property of your father. So the actual inheritance, etc may be irrelevant other than it may be relevant to the cost basis of the ring.

There are a couple of approaches, which are some4what complicated in that estate taxes (which are tied into gift taxes) for the future are up in the air:
1) Have your father sell the ring and report any gain on the sale as a capital gain (you will need to track down the basis in the ring- either original purchase price or value upon inheritance. With the latter, if you can do so the gain is often less in most circumstances). If you desire the proceeds then have him gift you the proceeds. He can give up to $13,000 a year to you and another $13,000 a year to your spouse (if you have one) without having to file a gift tax return. If you desire that he give you more in a given year then he can file a gift tax return and apply part of the estate exemption toward the gift tax (he won't pay a gift tax on it but it will reduce the amount of his estate that can be inherited tax free). If you want more than the $13,000 in a given year I would seriously consider option #2.
2) Have him gift you the ring and have you sell it. You would be responsible for the capital gains (again you need to track down the basis) and he would need to file a gift tax return as referenced in #1.

Adam
Accountant Wilmington NC

I think there is no issue of the ring. But the best is that you consult your tax professional and your lawyer. Otherwise its not any problem.