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You will need to find out what the fair market value of the painting was when you inherited it. If you do not the IRS will use $0 as your basis.When you inherited the painting you received a step up in basis, so the fair market value of the painting on the date of death for the deceased would be your basis.You would only then pay tax on the difference in your basis and the sales price.
Perhaps you can get get an appraisal from a gallery or art expert that would assist you. If you received any paperwork when you inherited the painting may be able to assist you also.
If the $18,000 is the only amount you have and the date is with in a year of the date of death for the deceased then you could use the bill of sale for your basis.
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okay...i have original letter from gallery dated 1976 that states the price of 18K, three years prior to granddad's death in 1979. sounds like i can use that 18K as basis plus another three years (till his death in 1979) during which the painting's value likely appreciated. famous painter and so i have printed out auction results starting in 1987--first year that shows an online auction result for him--up through 2013. his work has appreciated in value all the way through. i can also include in that basis the cost of refurbishing back in 1986 as well, right?
Yes you can.