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I have a friend who inherited many electronic items including those of the audiophile variety. Through ads on this site and others, he sold about $60k worth of equipment within this year. He is not a dealer and does not have a business, either physically or on paper. Most of the payment transactions were made through PayPal.
He is now worried about potential tax liability. Sometimes he created invoices. Sometimes the money was sent through PayPal's "Friends and Family" option. The money was transferred from PayPal to his bank account periodically. It suddenly occurred to him about possibly having a tax liability. This made me curious too. Would these proceeds need to be declared as income to the IRS? Could any of these bank deposits trigger an IRS audit?
Follow Ups:
MilkMan is correct. You may even to be able to claim a loss! But, you may be forced to pay state taxes.
"Inheritances are not considered income for federal tax purposes, whether you inherit cash, investments or property. Any subsequent earnings on the inherited assets are taxable, however. You will be taxed on the interest paid on inherited cash in a bank account, for example, or dividends on inherited stocks or mutual funds.
Any gains when you sell inherited investments or property are generally taxable, but you can usually also claim losses on these sales. State taxes on inheritances vary; check your state's department of revenue, treasury or taxation for details, or contact a tax professional."
"Only a handful of states (Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee) have some kind of inheritance tax. Refer to your state's Department of Revenue to see what the requirements are for filing inheritance tax."
-Rod
His cost basis in the inherited property is the fair market value of that property on the date he inherited it.
So if he inherited an amp worth $5,000, and sold it for $5,000, he has no tax liability.
Basically, he really has nothing to worry about.
Large bank deposits typically aren't enough to trigger an IRS audit. Still, if I were him, I'd at least save the emails and PayPal statements showing what he sold and for how much, just as a precaution.
??
Edits: 10/31/16 11/02/16 03/20/20
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