Dear Tax Talk,
My mother passed away last summer and my brother and I were designated as co-executors. We are in the process of listing the home with an agent. My question is about taxes on an estate sale. If furniture, artwork and decorative items are sold for less than the original price, is the income taxable? Or can we take a loss? If furniture is given to additional family members, is the item deductible? We are contributing most of the clothing to charities.
This entire process is becoming overwhelming! Thank you for your assistance.
You can disregard the original purchase price when determining if there is a gain or loss on the sale of your deceased mother's furniture, artwork and decorative items because your "basis" for determining gain or loss is going to be the fair market value of the items at the date of her death.
As you now know, executors have many duties to take care of for an estate. Unless the will specifies who gets what, the decisions regarding what to do with all of the personal belongings are especially difficult. Many items may have a very insignificant value dollar-wise, but the memories associated with them are truly priceless. And then there may be some more valuable items, such as the artwork, that need to be appraised.
Let's go through what your choices are now that it is time to make decisions. You can have an estate sale, divide the belongings among family members or donate items to charity -- or some combination of the three.
For example, take that living room sofa that was originally purchased for $3,500 10 years ago that was worth $500 when your mother died. If you sell it for $500, then there is no taxable gain or deductible loss. If you give it away to a qualified charitable organization, then you can claim the fair market value as a charitable deduction.
Regarding the option of giving items to family members, there is a saying that charity begins at home, and I am sure your family would really cherish having some of your mother's belongings. However, if you do give items away to family members, there is no income tax deduction -- just the satisfaction of knowing you have done something very generous.
I wish you and your brother to experience wonderful memories as you go through this process and keep in mind your mother had all the best reasons in having you two do this together.
Thanks for the great question.