Potential Tax Liability

Not necessarily. There may be a capital gains tax liability (as opposed to a tax liability based on ordinary income) if the amounts realized by the sales were greater than the fair market value of the items at the time of the decedent’s death, or at the time of an alternate valuation date if an alternate valuation date had been chosen by the executor. Also, tax forms might have to be filed even if there is no tax liability, although I haven’t done sufficient research to be certain of that. See this reference at the IRS website.

Also, if a capital loss occurred relative to the fair market value at the time of the decedent's death or alternate valuation date it may be possible to deduct some of that loss against ordinary income, up to a certain amount during this and subsequent years.

Regards,
-- Al

I believe, you have to inherit over 5 million before you owe any inheritance tax to the Feds..... You’ll have to look up the exact information because it changes.

No, that isn’t correct, Kenny. The $5 million threshold (actually $5.45 million at present) is a threshold that determines whether or not an individual’s estate (not the heirs) has to pay an "estate and gift tax." Also, in addition to the value of the estate gifts made during the decedent’s lifetime that are in excess of the annual gift tax exemption count toward that threshold.

As far as taxation at the Federal level is concerned the inheritances pass tax-free to the heirs regardless of their value. But if inherited property is subsequently sold by an heir my previous comments apply.

Best regards,
-- Al

If it’s used than tax had already been paid and double-jeopardy will make no sense.

Not sure if you are referring to sales tax that may have been collected by the original dealer from the original purchaser, or to income tax that may have been paid by the original dealer based on his profit from the sale. But neither is relevant to the question.

...you can even claim losses out of this sale endeavor.

Yes, as I mentioned in my initial post that is a possibility, within certain limitations.

Regards,
-- Al

The Federal Inheritance Tax Threshold is $625,000.

Consistent with earlier comments in the thread there is no such thing as a Federal Inheritance Tax, meaning that heirs do not have to pay Federal tax on their inheritance. There is a Federal Estate Tax, which is unified with the Gift Tax. The current Estate Tax threshold is $5.45 million, as I mentioned earlier. (See "Which Estates Must File" on page 2 of "Instructions for Form 706" at the IRS website. Also, as stated on page 1 of that document, "the basic exclusion amount is $5,450,000" ). The threshold was $625,000 in 1998.

You inherited a rare Amplifier that was appraised at $20,000 at the time of inheritance. Some Audiophile on Audiogon purchased it for $25,000. You are required to pay Income Tax on the $5,000 profit.

To be precise, I believe that the tax on the $5,000 would be levied based on long-term capital gains rates, not on ordinary income rates.

Regards,
-- Al

To be precise, again, I should add one more point regarding the fact that there is no Federal Inheritance Tax. Although heirs don’t have to pay Federal tax on what they receive from the decedent’s assets as they existed on the date of death, under many circumstances heirs may have to pay tax on whatever share they receive of income that may be earned by the estate subsequent to the decedent’s passing. That falls under what is known as the Estate Income Tax (for which the executor files Form 1041 if necessary, and it often will be necessary since the filing threshold is $600), as opposed to the Estate Tax (for which the executor files Form 706 if necessary, and it rarely will be necessary since the filing threshold is $5.45 million) :-)

Regards,
-- Al

Jim (Jea48), thanks for providing the links.  From the wording of your posts, though, I'm not sure if you've noticed that the requirement for issuance of a 1099-K is $20,000 **and** (not "or") 200 separate payments in a calendar year.

Best regards,
-- Al
 

... In my view, there is nothing that should be done in this situation unless and until the taxpayer receives a letter of inquiry or Notice of Audit....   If a taxpayer or representative  were to contact the I.R.S. about a filed return first, say to explain a Form 1099, their chances of being audited would only go up, thereby asking for "trouble".

Steve (Warmglowingtubesart), thanks very much for your informative posts.  But note in the OP the indication that the items were sold "within this year."  So presumably what is being looked for is guidance about how the sale proceeds should be treated when the 2016 return is prepared a few months from now.  (And perhaps also if a final quarterly estimated tax payment for 2016 will be submitted).

Regards,
-- Al