my mother in law's husband past away and she had an auction and her return was 50,000.00 dollars are taxs due

Question

most of the items were farm related it would help her to know if she had to report this as income on her tax return for 2007 we are in the state of texas.

Answer 1

Well, let's see, Texas does not have a state income tax, and no estate tax, so don't have to worry about that.

But for federal, there would possibly be tax owed. When the husband died, the farm equipment would hopefully have been valued as to what it was worth when he died. If the equipment was sold for more than that value there would be taxable gain, if for less than that there would be taxable loss. It all hinges on that.

Answer 2

Texas has no state income tax, so the following refers to federal income tax.

She needs to get her records or the auction house records of what items were sold and for how much. After that, the items need to be separated into personal items and business (farm use) items.

The personal use items (such as household furniture, personal vehicle etc.) are reported on Schedule D only when they are sold for more than they were purchased for (or the value when they were inherited). For inherited personal use property, she should indicate that the items were inherited and the basis as equal to the sales price, assuming the items were sold shortly after they were inherited. In this case no taxes would be due. For property that was not inherited, report only the items that are sold at a gain. Losses on personal property are not deducted and those items are not reported.

Now for the farm equipment used for business purposes. These items are reported on Form 4797 Sales of Business Property. This form computes the capital gain considering the depreciation that was taken and transfers the gain to Schedule D. If the business property was inherited, this also affects the basis and reduces the amount of gain taxed.

If the farm was used for business purposes, your mother probably wants a tax pro to prepare the return to properly report the auction sale.

Answer 3

She should report it on Schedule D at probably no gain or loss. The reason is that her cost basis is the date of death value for the items. The sales price within a reasonable period after death is the best evidence of the death value. So since the cost basis is equal to the sales price there is no gain or loss. Also - since TX is a community property state the Federal tax law says that she gets a 100% stepped up basis even if the farm items were joint property which is only 50% subject to estate tax if a Form 706 was due. In other words TX is one of the few states where spouses get 100% new cost basis for joint property after death.

Answer 4

Hi,
I know that federal law says that anything past to you from your spouse is not reportable income on your federal tax return, but if she had an auction this my be considered income from a sale. You will want to make sure you can call the federal tax at 1-800-829-1040 and also be sure to contact your state for the regulations there also. The number to contact your state is 1-817-292-0350 this is in Ft. Worth TX. I hope this helps some

Answer 5

Muddling through your post, it sounds like your the deceased person ran a farm and the widow sold farm equipment at auction for $50,000. If that's not right ignore the rest of this. The $50,000 is income from the sale of depreciable property. Any thing in excess of its tax basis is subject to income tax. If your mother in law is not comfortable preparing a business tax return by herself, she should take all the records to a tax professional, an Enrolled Agent or CPA.

Answer 6

Most likely not. The items were probably sold for less total than they were initially purchased for, so there wouldn't be any profit to report, and nothing to pay taxes on.

If she did make a profit overall, say if the items sold had total original purchase price of $30,000, then she'd owe taxes on the gain. That's pretty unlikely.

Answer 7

1. Any thing (money and property) you receive as gift or inheritance, you (the receiver) don't pay any federal tax liability.

2. If you inherit a property, your cost basis is the valuation (Fair Market Value) of the property at the date of the decedent's death or the FMV (Fair Market Value) on the alternate valuation date if the personal representative for the estate elects to use alternate valuation.

3. If you sell the inherited property at a price up to your cost basis you don't have any taxes due. However, if you sell the property at price more than the cost basis to you, then you pay the taxes on the profit (sale price minus your cost basis).

4. Report the sale on schedule D of Form 1040.

Answer 8

See a tax professional or attorney. Most states will consider this income. ALWAYS get professional advice on matters like this...
Never trust the people on here for advice such as this. You never know.... it could be a 10 year old giving you advice. This is too important to entrust an answer from folks you don't know.

Answer 9

She (or you can do it anonymously) needs to contact her state taxing agency and the IRS.