Taxes related to inherited stock?


Q

qguy

I inherited stock from my adult son (not a dependent), who died in 2012.
The stock was held in a taxable brokerage account.

First, the stock had a market value of about $30K when it was transferred
from my son's account to my own account (i.e. transfer of ownership), which
was 2 months after my son's death. But I believe the stepped-up basis is
usually the market value on the date of my son's death [1]. Right?

Second, for the purpose of my son's federal 1040 and Calif 540 forms for
2012, are there any tax implications due to the transfer of ownership of the
stock by inheritance?

For example, do we report capital gain/loss for the difference between the
original basis [2] and the stepped-up basis on my son's federal 1040 and
Calif 540 forms for 2012? If so, how and where: as a "sale" on Sched D?

(I believe we do not need to file form 706 in my son's case, due to the
small size of the total estate.)

I have no record of the original basis or purchase dates of the stock in my
son's account. There are no paper records; and the online account was
closed as soon as I reported my son's death to the broker. If I do need the
original basis for any reason, I would try to get that information from the
broker.


-----
[1] A Nolo Press book also mentions an "alternative valuation date" of 6
months later. I am not interested in that alternative.

[2] By "original" basis, I mean my son's basis of the stock before the
transfer of ownership by inheritance.
 
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J

JoeTaxpayer

I inherited stock from my adult son (not a dependent), who died in 2012.
The stock was held in a taxable brokerage account.
I am very sorry for your loss.
I can't answer the state issue, but the federal is easy for you. Your
basis is now stepped up to the value on the date of passing. (As you
indicated no interest in the 6 mo alternative)

Part of the benefit of the step-up on one's passing is that there is no
need to track down the original basis.
As you surmised, 706 isn't needed.
 
A

Alan

I inherited stock from my adult son (not a dependent), who died in 2012.
The stock was held in a taxable brokerage account.

First, the stock had a market value of about $30K when it was
transferred from my son's account to my own account (i.e. transfer of
ownership), which was 2 months after my son's death. But I believe the
stepped-up basis is usually the market value on the date of my son's
death [1]. Right?
Your basis is the market value on the date of death. Your holding period
is long-term.
Second, for the purpose of my son's federal 1040 and Calif 540 forms for
2012, are there any tax implications due to the transfer of ownership of
the stock by inheritance?
No. Your son's final income tax returns reflect activity up until the
date of death.
For example, do we report capital gain/loss for the difference between
the original basis [2] and the stepped-up basis on my son's federal 1040
and Calif 540 forms for 2012? If so, how and where: as a "sale" on
Sched D?
Not relevant given the above answer.
(I believe we do not need to file form 706 in my son's case, due to the
small size of the total estate.)
True assuming the total estate was under $5,120,000.
I have no record of the original basis or purchase dates of the stock in
my son's account. There are no paper records; and the online account
was closed as soon as I reported my son's death to the broker. If I do
need the original basis for any reason, I would try to get that
information from the broker.


-----
[1] A Nolo Press book also mentions an "alternative valuation date" of 6
months later. I am not interested in that alternative.

[2] By "original" basis, I mean my son's basis of the stock before the
transfer of ownership by inheritance.
 
Q

qguy

Alan said:
Your basis is the market value on the date of death.
Your holding period is long-term. [....]
are there any tax implications due to the transfer
of ownership of the stock by inheritance?
No. Your son's final income tax returns reflect
activity up until the date of death.
Thanks, Alan and JoeTaxpayer. I'm pleasantly surprised that Uncle Sam
forfeits its "pound of flesh". Count me happy to be part of the "99%"
<smile>.

And thanks, Alan, for reminding me that the holding period is long-term.
 
A

Arthur Kamlet

Alan said:
Your basis is the market value on the date of death.
Your holding period is long-term. [....]
are there any tax implications due to the transfer
of ownership of the stock by inheritance?
No. Your son's final income tax returns reflect
activity up until the date of death.
Thanks, Alan and JoeTaxpayer. I'm pleasantly surprised that Uncle Sam
forfeits its "pound of flesh". Count me happy to be part of the "99%"
<smile>.

And thanks, Alan, for reminding me that the holding period is long-term.

Just remember that the step up can actually be a step down in basis.
 
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A

Arthur Kamlet

Why should that matter to me?



Some people react strongly to learn that if the decedant had
sold it before death, he could have had a loss on his tax return.


Suppose my son bought stock at a cost of $1000 in a taxable account. The
market value is $800 on the date that he dies, 3 months later. I inherit
and sell the stock for $900 two months later.

Alternatively, suppose my son bought the stock at $700. All other facts
remain the same.

As I understand it, in both cases, my basis is $800, my capital gain is
$100, and it is considered long-term gain despite the fact that the stock
had been held for less than 12 months by my son and by me separately and
even combined.

Moreover, as I understand it, there is no capital loss (first case) or gain
(second case) to report on my son's Form 1040 of the year that he died.

(We do not have to file a Form 706 for my son. But if we did, would we have
to report the loss or gain there due to the difference in step-up or
step-down? I don't remember.)

Not until it is sold.
 

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