When it comes to filing estate taxes, some people are confused about what needs to be done. If your loved one's estate must file a tax return, this must be done within nine months of the death. It is possible to get an extension for another six months.
The personal representative or administrator of the estate must file the tax return. The tax return for the estate is based on the fair market value of the estate. This is much different from the amount that was paid for the asset.
The fair market value is the amount that an asset would be sold for if the seller was willing to sell the asset and could find a buyer who was willing to purchase the asset. This is based on what a reasonable person would do and doesn't take eccentric factors into the picture.
Another thing that you should know about fair market value is that it isn't based on a forced sale. This means that it wouldn't be the price of the asset that would come up if a person just needed to offload the asset as quickly as possible.
The fair market value must take a method of sale that would commonly be used to sell the asset into account. This means that it would be set by an usual method of selling the item.
All of this can be complicated for the people who are left being to deal with an estate. Think carefully about each point in the filing when you file the estate's taxes. This includes finding out how to determine the fair market value of the estate's assets.
Source: Internal Revenue Service, "Frequently Asked Questions on Estate Taxes," accessed July 05, 2017