Step down in basis (at death)?
Step down in basis (at death)?
A friend of mine’s mother passed away and he inherited a stock portfolio from her. The concentrated stock portfolio was significantly lower at death from her purchase price. For tax purposes does he have to step down the assets at date of death or can he use her original cost basis when she purchased them? She had no other assets (properties, bonds, etc) aside from a bank account. I understand most people are in a position to step up basis at date of death but must you step down if there is a loss?
Re: Step down in basis (at death)?
Step down in basis at death is what happens, too.
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Re: Step down in basis (at death)?
It's FMV as of date of death.
I had a similar situation with my mother's condo. Purchased at $595k in 2004, put another $100k of improvements yet at the time of her death (2008) value was at $487k. 18mos before she had an appraisal that came in at $900k.
My basis is $487 + another 8k or so I made in improvements. It's now worth about $700k.
I had a similar situation with my mother's condo. Purchased at $595k in 2004, put another $100k of improvements yet at the time of her death (2008) value was at $487k. 18mos before she had an appraisal that came in at $900k.
My basis is $487 + another 8k or so I made in improvements. It's now worth about $700k.
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Re: Step down in basis (at death)?
Yep, original cost has no relevance. Assets take on a new basis when included in an estate, regardless of the decedent's actual cost.
Gill
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
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Re: Step down in basis (at death)?
If there's a capital loss, the estate can sell the stock prior to it being inherited, and the estate can take the loss. There may be situations where that is the best course of action.jimmy wrote:A friend of mine’s mother passed away and he inherited a stock portfolio from her. The concentrated stock portfolio was significantly lower at death from her purchase price. For tax purposes does he have to step down the assets at date of death or can he use her original cost basis when she purchased them? She had no other assets (properties, bonds, etc) aside from a bank account. I understand most people are in a position to step up basis at date of death but must you step down if there is a loss?
IANAL and I am not an accountant.
Re: Step down in basis (at death)?
What are you saying here? What do you mean by "prior to it being inherited"? I think you're confusing most readers by this post including this one.trueblueky wrote:If there's a capital loss, the estate can sell the stock prior to it being inherited, and the estate can take the loss. There may be situations where that is the best course of action.jimmy wrote:A friend of mine’s mother passed away and he inherited a stock portfolio from her. The concentrated stock portfolio was significantly lower at death from her purchase price. For tax purposes does he have to step down the assets at date of death or can he use her original cost basis when she purchased them? She had no other assets (properties, bonds, etc) aside from a bank account. I understand most people are in a position to step up basis at date of death but must you step down if there is a loss?
IANAL and I am not an accountant.
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
Re: Step down in basis (at death)?
When the stock is sold, the adjusted basis for calculating gain or loss is the FMV at date of death, regardless of whether the stock is sold by the estate or by the beneficiary.trueblueky wrote:If there's a capital loss, the estate can sell the stock prior to it being inherited, and the estate can take the loss. There may be situations where that is the best course of action.jimmy wrote:A friend of mine’s mother passed away and he inherited a stock portfolio from her. The concentrated stock portfolio was significantly lower at death from her purchase price. For tax purposes does he have to step down the assets at date of death or can he use her original cost basis when she purchased them? She had no other assets (properties, bonds, etc) aside from a bank account. I understand most people are in a position to step up basis at date of death but must you step down if there is a loss?
Re: Step down in basis (at death)?
The person approaching death should sell the stocks at a loss, or gift them to the heirs to maintain the cost basis. IANAL
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Re: Step down in basis (at death)?
I think I understand what trueblueky is saying. Part of winding down the estate of a decedent is filing a final income tax return for the estate. If the decedent' stock was currently trading at a share price lower than its cost basis, then selling it would incur a capital loss, which theoretically would count against the estate's gains and possibly reduce any taxes on income. However, I don't think this scenario is possible in any real practical sense. The cost basis of any shares held by the decedent is reset to current value at the time of death, so if the shares are sold soon after date of death as part of settling the estate, it would be very difficult to incur any capital gain or loss that was significantly more than de minimis.Gill wrote:What are you saying here? What do you mean by "prior to it being inherited"? I think you're confusing most readers by this post including this one.trueblueky wrote:If there's a capital loss, the estate can sell the stock prior to it being inherited, and the estate can take the loss. There may be situations where that is the best course of action.jimmy wrote:A friend of mine’s mother passed away and he inherited a stock portfolio from her. The concentrated stock portfolio was significantly lower at death from her purchase price. For tax purposes does he have to step down the assets at date of death or can he use her original cost basis when she purchased them? She had no other assets (properties, bonds, etc) aside from a bank account. I understand most people are in a position to step up basis at date of death but must you step down if there is a loss?
IANAL and I am not an accountant.
Gill
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Re: Step down in basis (at death)?
Unused capital losses die with the decedent.sport wrote:The person approaching death should sell the stocks at a loss, or gift them to the heirs to maintain the cost basis. ...
If you make a gift of property that has gone down in value, the donee takes the donor's basis for purposes of determining gain, but a basis equal to the value at the time of the gift for purposes of determining loss. For example, if the donor's basis is 100 and the value is 90, if the donee sells the property for 110 the donee will have a gain of 10; and if the donee sells the property for 80 the donee will have a loss of 10. If the donee sells the property for between 90 and 100 the donee won't have any gain or loss.
Re: Step down in basis (at death)?
Same thing happened to my wife with some stock when her father passed away in 2008. The price was significantly lower then (and was even worse six months later), so it was a low cost basis she inherited. Of course, we weren't thinking about that then. That was just the latest death in the family, as her mother had passed 11 months earlier, and my father 5 months after her. It was a rough year.
Re: Step down in basis (at death)?
I know there are some situations where you can elect to use the FMV 6 months after death instead (which could potentially result in higher basis) - don't know the details of where this applies.
Re: Step down in basis (at death)?
That used to be the case. However, since 1984 you can only use alternate valuation if it reduces both the value of the estate and the amount of the estate tax.dan23 wrote:I know there are some situations where you can elect to use the FMV 6 months after death instead (which could potentially result in higher basis) - don't know the details of where this applies.
Re: Step down in basis (at death)?
Sorry, this doesn't work. See bsteiner's explanation of a gift of shares held at a loss.sport wrote:The person approaching death should sell the stocks at a loss, or gift them to the heirs to maintain the cost basis. IANAL
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
Re: Step down in basis (at death)?
I see that gifting would not work. But a person approaching death could sell any losing positions and realize the loss. This would seem to maximize their estate.Gill wrote:Sorry, this doesn't work. See bsteiner's explanation of a gift of shares held at a loss.sport wrote:The person approaching death should sell the stocks at a loss, or gift them to the heirs to maintain the cost basis. IANAL
Gill