What documentation does the IRS accept to prove the stepped‑up basis for inherited precious metals?
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Executive summary
The IRS treats inherited precious metals as receiving a “step‑up” in basis to their fair market value at the decedent’s date of death, and proving that stepped‑up basis typically requires contemporaneous valuation evidence such as professional appraisals, dealer or brokerage records, or estate tax filings [1] [2]. When original purchase receipts are missing, the IRS accepts reasonable, documented methods — historical spot prices, dealer records, bank statements and a demonstrable “best efforts” approach — but taxpayers should preserve every supporting item and be prepared to explain valuation methodology on Form 8949 and Schedule D [3] [1] [4].
1. What “step‑up in basis” means and why documentation matters
The step‑up in basis resets the cost basis of inherited assets to their fair market value on the decedent’s date of death, which can eliminate or reduce capital gains tax liability for heirs when they later sell the metals; that legal principle applies to precious metals classified as collectibles and taxed at up to a 28% long‑term rate [1] [4] [5]. Because the tax owed on a later sale is the difference between sale proceeds and that stepped‑up basis, the IRS expects documentation demonstrating how the heir determined fair market value at death — otherwise reported gains may be challenged [2] [1].
2. Primary forms of evidence the IRS will accept
The clearest, most defensible proof of stepped‑up basis is a professional appraisal dated at or near the date of death, prepared by a qualified appraiser familiar with coins, bullion or jewelry, showing fair market value and methodology [2] [6]. Equally useful are contemporaneous third‑party records: dealer or brokerage account statements listing holdings and values, Form 1099‑B if issued on sale, bank statements or cancelled checks showing purchase or sale transactions, and estate tax returns or probate inventories that assign values to the metals [1] [4] [7].
3. When receipts are gone: acceptable alternative evidence and “reasonable method”
Tax guidance and practitioner sources acknowledge that original receipts are often unavailable for older holdings and say the IRS will accept a documented, reasonable method to reconstruct basis — for example, historical spot prices plus the typical premium paid, corroborated by dealer records, correspondences and a clear calculation — provided the taxpayer shows a systematic, good‑faith effort [3] [1]. Multiple corroborating items (two independent dealer offers, appraiser notes, photographs, weight and purity tests) strengthen the position and lower the risk of an audit adjustment [6] [3].
4. Valuation date choices and the alternate six‑month rule
Fair market value is normally measured at the date of death, but taxpayers may use the Section 2032 alternate valuation rule — valuing estate assets six months after death — when that election lowers estate tax liability; that provision can affect the stepped‑up basis reportable to heirs if properly elected on the estate’s tax return [8]. Any elected alternate valuation must be supported by estate filings and consistent documentation so the IRS can reconcile estate tax values with the basis the heir reports on sale [8] [7].
5. Reporting the sale and the paperwork trail to submit or retain
Sales of inherited precious metals get reported on Form 8949 and Schedule D, with heirs entering the stepped‑up basis used to compute gain or loss; if the dealer did not report basis on Form 1099‑B, the taxpayer must manually supply their calculated basis and retain backup documentation in case of IRS inquiry [1] [9]. Keep appraisals, dealer/broker statements, bank records, estate inventories, photographs, assay or hallmark reports, and a clear written narrative of the valuation method for at least as long as the statute of limitations — because the IRS expects a paper trail even when the basis is reconstructed [3] [4].
6. Practical steps, expert help, and limitations in the reporting
Heirs should obtain at least one professional appraisal dated to the date of death (or an estate‑level appraisal), collect dealer and bank records, document any assumptions (spot price sources, premiums), consult tax counsel for complex estates or IRAs holding metals, and be candid that sources consulted here are secondary guidance and industry practice rather than a single definitive IRS how‑to handbook in these excerpts [2] [6] [3] [4]. The reporting landscape accepts reasonable, well‑documented reconstructions, but the absence of contemporaneous receipts raises audit risk — so using appraisers, keeping multiple corroborating records, and filing consistent estate-tax elections is the practical path to prove a stepped‑up basis [3] [8] [1].