Potential Tax Liability

Not necessarily. There may be a capital gains tax liability (as opposed to a tax liability based on ordinary income) if the amounts realized by the sales were greater than the fair market value of the items at the time of the decedent’s death, or at the time of an alternate valuation date if an alternate valuation date had been chosen by the executor. Also, tax forms might have to be filed even if there is no tax liability, although I haven’t done sufficient research to be certain of that. See this reference at the IRS website.

Also, if a capital loss occurred relative to the fair market value at the time of the decedent's death or alternate valuation date it may be possible to deduct some of that loss against ordinary income, up to a certain amount during this and subsequent years.

Regards,
-- Al

+1 Al.  Coordinate with the executor of the will regarding valuation. Also note that if the inheritor was a named beneficiary for those items in the will, then it may be that the inheritance passed tax-free and may be disposed of without liability.  This can depend on the overall value of the estate.  Some states may have additional wrinkles based on value, too.

I believe, you have to inherit over 5 million before you owe any inheritance tax to the Feds. And, there are only a handful of states that collect inheritance tax at all. You'll have to look up the exact information because it changes.

What may be important to determine, is the value of the audio gear at the time you inherited it. This would be the basis value to figure out if you owe taxes or not, but only when you sell it, so did you have a profit or loss from the sale? I realize this is your friend's equipment. So, if your friend's equipment was valued at $65K when he inherited it. If he sold it later for $60K, he would have no tax owed.

However, he should ask his accountant about this stuff, because I'm not an accountant.
Kenny

I believe, you have to inherit over 5 million before you owe any inheritance tax to the Feds..... You’ll have to look up the exact information because it changes.

No, that isn’t correct, Kenny. The $5 million threshold (actually $5.45 million at present) is a threshold that determines whether or not an individual’s estate (not the heirs) has to pay an "estate and gift tax." Also, in addition to the value of the estate gifts made during the decedent’s lifetime that are in excess of the annual gift tax exemption count toward that threshold.

As far as taxation at the Federal level is concerned the inheritances pass tax-free to the heirs regardless of their value. But if inherited property is subsequently sold by an heir my previous comments apply.

Best regards,
-- Al

Hopefully you don't live in California like I do. We have one simple form for the transaction you're involved in. 

1. Enter how much you profit you made here:  $ ________. 

2. Write a check for the amount on line one and send it in.