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What kind of net losses can be written off on Estate Tax

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Form 706, Schedule L? If...
What kind of net losses can be written off on Estate Tax Form 706, Schedule L? If Picasso's were stolen from the decendent's residence, a report was filed with police and the Picasso's were never recovered, can the Picasso's value be claimed as a theft loss? What if no appraisal of the Picassos was ever done? How does the CPA figure out the amount to claim as a loss? Here is the form: https://www.irs.gov/pub/irs-pdf/f706.pdf
Submitted: 1 year ago.Category: Tax
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8/18/2016
Tax Professional: Barbara, Enrolled Agent replied 1 year ago
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,448
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

Any losses (from theft, fire, storms) that occur during the settlement of the estate should be reported on Schedule L. These losses are deductible unless they’re reimbursed in some way (by insurance, for example).

As to the value of the artwork, there are ways/sources to determine the value even if there are no appraisals that were done. Your CPA will know exactly how to go about this.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 1 year ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 510
Experience: Former IRS Revenue Agent
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Dear Customer,

1) The Picasso must have been listed on Schedule F under line 1 of art items at date of death exceeded 3,000. On this schedule, identify

the property for which you are claiming the loss by indicating the schedule and item number where the property is included in the gross estate.

2) Whether you claim such a loss and/or how to report on Schedule L needs further thinking. The Form 706 reduction reduces the estate tax.

3) You may want to consider to report the loss on the estate income tax return or to report it here. It is a choice between the income tax and estate tax. Depending on the tax benefit, you may want to report the item on the estate tax return and take the loss on the income tax return.

3) For a large and significant item of casualty and loss as such, a police report will not cut it. You need to have reported to the insurance company. The process and documents need to be on file. It has to have professional appraisal. As you might have known, an appraiser may and should be able to give an appraised value even after the effect. For anyone who needs to file estate tax form 706, the CPA cannot just come with a value on him/herself. That is out of our specialty. Form 706 is scrutinized by the IRS. The loss of a major art collection is a key issue in the return. It has significance beyond just estate tax to the IRS. Many beneficiaries of the estate in court would use the tax return as a document for their arguments, and the dispute can go on for years. An official appraisal is a have-to in this case.

5) One simple requirement of the appraisal by the appraiser is published in Publication 17. More links are stated below.

Appraisal. An appraisal to determine the difference between the FMV of the property immediately before a casualty or theft and immediately afterward should be made by a competent appraiser. The appraiser must recognize the effects of any general market decline that may occur along with the casualty. This information is needed to limit any deduction to the actual loss resulting from damage to the property.

Several factors are important in evaluating the accuracy of an appraisal, including the following.

  • The appraiser's familiarity with your property before and after the casualty or theft.

  • The appraiser's knowledge of sales of comparable property in the area.

  • The appraiser's knowledge of conditions in the area of the casualty.

  • The appraiser's method of appraisal.

6) These are further references on the reporting on theft and casualty losses.

https://www.irs.gov/publications/p17/ch25.html

https://www.irs.gov/publications/p547/ar02.html

https://www.irs.gov/taxtopics/tc515.html

Regards,

Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP

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Tax Professional: Barbara, Enrolled Agent replied 1 year ago

First expert here - I provided my initial answer to open a dialogue with you, but before you could respond, the second expert in this thread chose to interject. Just to be clear, I did not mean that your CPA would actually place a value on the artwork, but he/she would be able to provide you with detailed information regarding obtaining appraisals, etc.

Best regards,

Barb

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Barbara
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