Two cousins inherited a valuable painting from an Aunt. The estate valued it at $15,000. I knew that appraisal was incorrect. I had it appraised within weeks of shipment and it was appraised at $140,000. I wanted to keep it until we both reached retirement age (now) and it was sold for about $96,000 after fees and commissions. It was sold in Hong Kong. So, what is the established basis?

ANSWER

The BIDaWIZ Team's Answer:

You are technically allowed to amend the estate tax return form 706 only if there is an error. If there was error in the appraisal, then you must provide strong support for substantiating it. However, we are concerned by the fact pattern that you provided. Specifically, the valuable painting was initially appraised for $15,000 and then $140,000, to be sold for $96,000. The $140,000 appraisal would likely be questioned because valuable artwork doesn't depreciate. In fact, in 1968 the IRS issued Rev. Rul. 68-232, in which it held that a valuable and treasured art piece does not have a determinable useful life. While the actual physical condition of the property may influence the value placed on the object, it will not ordinarily limit or determine the useful life. Accordingly, depreciation of works of art generally is not allowable.