An appraisal for tax purposes must be done using fair market value by IRS regulations. In most cases, this is substantially lower than it would be for insurance replacement. It is very important to choose an appraiser with professional qualifications to perform this task since it can save tax and avoid any penalties.
For value purposes, the estate has the option to choose the date of death or the alternate date (six months later) to determine the tax liability. In the event there is a sizable difference between the two dates, the date in which lowest values occur can be used. This was critical during the late ‘70s and early ‘80s when the diamond and metal markets exploded and then came crashing back down. Whichever date is chosen, it would apply to all of the property in the estate. The executor should determine that if, for example, the value of the jewelry has gone up and the stocks and bonds have gone down, which of the two dates would be beneficial to use as the valuation date.
In the event some of the items have to be sold from the estate to settle court costs, attorney’s fees or taxes, there can be some tax relief. For example, if a diamond ring had a fair market value of $20,000 and was sold by the estate for $10,000, the value of the estate can be reduced by the difference and consequently lower the taxes. This can be done within three years of settling the estate with the IRS. The proviso is that the item must be sold to someone commonly in the business of buying and selling similar items. It can’t be sold to a relative, friend, neighbor, etc.
The fair market value for all of the jewelry in the estate must exceed $5,000 before IRS regulations come into effect.
Cos Altobelli, is a third generation jeweler and president of Altobelli Jewelers in Burbank, previously located in North Hollywood for 60 years. His specialty is appraising for all functions and acting as an expert witness.
He holds a graduate degree from the Gemological Institute of America and the title of Certified Gemologist Appraiser, from the American Gem Society, is the author of three appraisal books, and has appeared on “Prime Time Live” several times.
Mr. Altobelli can be reached at (818) 763-5151.