Cost basis date to use for inherited stock

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gensuki
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Cost basis date to use for inherited stock

Post by gensuki » Fri Mar 08, 2019 8:38 am

My husband inherited a stock when his mother died. She died Jan 2013 but the stock didn't get transferred from her trust to my husband's account until December 2014. He sold all the stock in 2018. Would his cost basis be the day of his mother's death or the day it was transferred to my husband's account. Thank you.

ionball
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Re: Cost basis date to use for inherited stock

Post by ionball » Fri Mar 08, 2019 9:12 am

Date of death. I'm not a qualified expert, so double check.

IowaFarmWife
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Re: Cost basis date to use for inherited stock

Post by IowaFarmWife » Fri Mar 08, 2019 9:16 am

When I inherited stock, the cost basis was based on the date of death.
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dcnut
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Re: Cost basis date to use for inherited stock

Post by dcnut » Fri Mar 08, 2019 10:02 am

The cost basis for inherited stock is usually the date of death. In some circumstances, however, the administrator/executer/trustee may choose to value the estate on the alternative valuation date: six months after death. The inheritor's cost basis is the same as the estate valuation. On the tax return, write "inherited" for the date acquired.

GT99
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Re: Cost basis date to use for inherited stock

Post by GT99 » Fri Mar 08, 2019 10:40 am

gensuki wrote:
Fri Mar 08, 2019 8:38 am
My husband inherited a stock when his mother died. She died Jan 2013 but the stock didn't get transferred from her trust to my husband's account until December 2014. He sold all the stock in 2018. Would his cost basis be the day of his mother's death or the day it was transferred to my husband's account. Thank you.
I literally just had my mother ask her CPA this question for stocks received from my father. He said you can use date of death OR 6 months after date of death.

Geologist
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Re: Cost basis date to use for inherited stock

Post by Geologist » Fri Mar 08, 2019 10:45 am

GT99 wrote:
Fri Mar 08, 2019 10:40 am
gensuki wrote:
Fri Mar 08, 2019 8:38 am
My husband inherited a stock when his mother died. She died Jan 2013 but the stock didn't get transferred from her trust to my husband's account until December 2014. He sold all the stock in 2018. Would his cost basis be the day of his mother's death or the day it was transferred to my husband's account. Thank you.
I literally just had my mother ask her CPA this question for stocks received from my father. He said you can use date of death OR 6 months after date of death.
My understanding is that you can only use the alternate date of 6 months after the date of death if it affects the Federal estate taxes paid by the estate (decreases them). If the estate didn't pay any Federal estate taxes, the alternate date is not relevant and you use the date of death.

not4me
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Re: Cost basis date to use for inherited stock

Post by not4me » Fri Mar 08, 2019 11:41 am

gensuki wrote:
Fri Mar 08, 2019 8:38 am
My husband inherited a stock when his mother died. She died Jan 2013 but the stock didn't get transferred from her trust to my husband's account until December 2014. He sold all the stock in 2018. Would his cost basis be the day of his mother's death or the day it was transferred to my husband's account. Thank you.
I would exercise a bit of caution here. I underlined what I think may be an important phrase. Trusts can bring complications -- although it is most likely the previous posters were correct. The standard answer would be to ask the trustee. Also, if there happened to be reinvested dividends, this could affect

Gill
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Re: Cost basis date to use for inherited stock

Post by Gill » Fri Mar 08, 2019 12:17 pm

GT99 wrote:
Fri Mar 08, 2019 10:40 am
gensuki wrote:
Fri Mar 08, 2019 8:38 am
My husband inherited a stock when his mother died. She died Jan 2013 but the stock didn't get transferred from her trust to my husband's account until December 2014. He sold all the stock in 2018. Would his cost basis be the day of his mother's death or the day it was transferred to my husband's account. Thank you.
I literally just had my mother ask her CPA this question for stocks received from my father. He said you can use date of death OR 6 months after date of death.
This CPA had better be careful with his advice. There is no ability to use alternate valuation unless it reduces the value of the estate and the estate tax. This is now quite rare. Also, it is possible the stock could have been inherited as the remainderman of a trust in which case basis may not have been stepped up.
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

livesoft
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Re: Cost basis date to use for inherited stock

Post by livesoft » Fri Mar 08, 2019 12:44 pm

I've learned from Gill and these situations can be tricky. As he noted, since the word "trust" was used, so one had better get a more authoritative answer for this particular situation. Or maybe 2 or 3 answers that all agree.

And a reminder to readers: When one inherits shares, I think it is best to document the cost basis right then and there and not wait until years later to figure things out even if one is going to not sell the shares right away.
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justlearnin
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Re: Cost basis date to use for inherited stock

Post by justlearnin » Thu Mar 14, 2019 11:47 pm

This is something I have been thinking of too. My husband died in 2013. I was the sole beneficiary of my husband's property, including financial accounts. I did not inherit through a trust, simply as beneficiary on all accounts or through his will. It too took awhile from my husband's date of death until I changed things into my name. Some of the accounts I changed by the end of 2013 and the rest of the accounts I changed in 2014.

In some accounts thing changed from my husband's name to the estate of husband's name and then to my name. I can't remember which had a 2 step change. But it might have been a day or two when accounts changed from his name and then the estate's name, then to my name. The others went directly from his name to my name.

Since that time, I have sold no more than 3 individual stocks. In one stock I asked the date the cost basis began and I was told by the financial institution it was the date that the account changed into my name. I asked why the cost basis wasn't the date of my husband's death. And the person was emphatic that it was the date it changed into my name. I looked it up and it didn't matter much either way, when I sold the stock, I sold it at a loss and the amount was insignificant.

However, that won't always be the case, I expect. So, it would be good to get a solid answer.

After my husband died, and before doing the estate taxes my accountant had me contact all financial institutions, etc and get account valuations of everything I inherited to the date of my husband's death. So I have records of that.

One other question I have. My husband as stated above and kept records going back to the 70's of his accounts. Since he died, I have kept records of the first month of when he bought stocks, bonds, etc and the end of year statements, rather than each monthly statement. My husband rarely sold anything, so that was rarely an issue.

Since I inherited these, do I need to keep all those records going back to the 70's, or just the statements from his date of death and then end of year statements? It would be really wonderful to get rid of many of these statements and get back some space in my overflowing file cabinets.

Thank you for your input.

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Epsilon Delta
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Re: Cost basis date to use for inherited stock

Post by Epsilon Delta » Fri Mar 15, 2019 3:30 am

Note that there are many types of trust, used for many different purposes. Credit shelter by-pass trusts, living trusts, Totten trusts, IRAs, ... . The nature of the trust the inheritance came from matters a great deal.

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RickBoglehead
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Re: Cost basis date to use for inherited stock

Post by RickBoglehead » Fri Mar 15, 2019 5:10 am

justlearnin wrote:
Thu Mar 14, 2019 11:47 pm
This is something I have been thinking of too. My husband died in 2013. I was the sole beneficiary of my husband's property, including financial accounts. I did not inherit through a trust, simply as beneficiary on all accounts or through his will. It too took awhile from my husband's date of death until I changed things into my name. Some of the accounts I changed by the end of 2013 and the rest of the accounts I changed in 2014.

In some accounts thing changed from my husband's name to the estate of husband's name and then to my name. I can't remember which had a 2 step change. But it might have been a day or two when accounts changed from his name and then the estate's name, then to my name. The others went directly from his name to my name.

Since that time, I have sold no more than 3 individual stocks. In one stock I asked the date the cost basis began and I was told by the financial institution it was the date that the account changed into my name. I asked why the cost basis wasn't the date of my husband's death. And the person was emphatic that it was the date it changed into my name. I looked it up and it didn't matter much either way, when I sold the stock, I sold it at a loss and the amount was insignificant.

However, that won't always be the case, I expect. So, it would be good to get a solid answer.

After my husband died, and before doing the estate taxes my accountant had me contact all financial institutions, etc and get account valuations of everything I inherited to the date of my husband's death. So I have records of that.

One other question I have. My husband as stated above and kept records going back to the 70's of his accounts. Since he died, I have kept records of the first month of when he bought stocks, bonds, etc and the end of year statements, rather than each monthly statement. My husband rarely sold anything, so that was rarely an issue.

Since I inherited these, do I need to keep all those records going back to the 70's, or just the statements from his date of death and then end of year statements? It would be really wonderful to get rid of many of these statements and get back some space in my overflowing file cabinets.

Thank you for your input.
For all assets that your husband held directly, the cost basis is now date of death. You only need to keep cost basis changes, i.e. reinvested dividends which have their own costs, from date of death forward. All records prior to date of death are obsolete.
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justlearnin
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Re: Cost basis date to use for inherited stock

Post by justlearnin » Sun Apr 21, 2019 9:40 am

Rickboglehead,

I want to thank you. I confirmed what you had to say with my accountant. Yesterday I did get rid of a bags of financial statements dating back to before my husband died. I gained much space in my file cabinets. I have some more to do, but not much. I really appreciate the information shared on this site.

Thank you

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RickBoglehead
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Re: Cost basis date to use for inherited stock

Post by RickBoglehead » Sun Apr 21, 2019 9:46 am

justlearnin wrote:
Sun Apr 21, 2019 9:40 am
Rickboglehead,

I want to thank you. I confirmed what you had to say with my accountant. Yesterday I did get rid of a bags of financial statements dating back to before my husband died. I gained much space in my file cabinets. I have some more to do, but not much. I really appreciate the information shared on this site.

Thank you
Happy to help.
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Alan S.
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Re: Cost basis date to use for inherited stock

Post by Alan S. » Sun Apr 21, 2019 10:42 am

The cost basis for inherited stocks is not the closing value on the DOD (when DOD applies), but this:
Calculating Total Value
The value of the stocks is measured by the average of the high and low value on the valuation date. For example, on the valuation date the stock traded between $50 and $54. Your basis for each share is $52. If the valuation date is a day the markets are closed, use the average of the high and low for the date before and the high and low for the day after the valuation date. For example, the valuation day is a Sunday. If the stock traded between $60 and $62 on the previous Friday and $61 and $65 on Monday, the value is $62 per share.

GrowthSeeker
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Re: Cost basis date to use for inherited stock

Post by GrowthSeeker » Sun Apr 21, 2019 11:01 am

I think that whatever date you are using (most likely date of death, or under some circumstances 6 months later) you're technically supposed to average the high and low for that date. From what I recall, when I looked into this several years ago, the actual IRS language about this point is vague; so whether you use (H+L)/2 or just closing price, it may not matter.

And if it falls on a weekend, or a day the market is closed, then average the high and low of both adjacent trading days, eg Monday and Friday's High and Low.

I am not a CPA or tax expert.
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inbox788
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Re: Cost basis date to use for inherited stock

Post by inbox788 » Sun Apr 21, 2019 12:52 pm

Alan S. wrote:
Sun Apr 21, 2019 10:42 am
The cost basis for inherited stocks is not the closing value on the DOD (when DOD applies), but this:
Technically correct, but practically, I doubt it would matter in but the rarest cases.

I'd say they should change it so it was valued at the time of death to be most accurate. Alternatively, the volume weighted average would also be more accurate. You can discuss with the auditor if you're ever in a position to deal with this specific issue.

FYI, SP500 was at 1500 in Jan 2013, 2000 Dec 2014, and 2500-2900 in 2018.

I don't know the answer, but depending on how many zeroes were talking about, I'd be darn sure to get an authoritative answer before choosing the DOD. If there is professional ambiguity on the matter, I'd consider saving documentation and being aggressive with the cost basis.

Smilodon
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Re: Cost basis date to use for inherited stock

Post by Smilodon » Wed Jul 31, 2019 8:00 pm

Am I correct that the official regulations concerning this thread topic are the following?

Valuation for stock: 26 C.F.R. § 20.2031–2
Valuation of stocks and bonds

A scenario of interest to me at the moment is if the deceased died on a weekend day. If I understand the regulation correctly (using Example 3), the stock valuation calculation (cost basis to whom inherits the stock) reduces to the mean of four values: the low and high price the prior Friday, and the low and high price the following Monday. This assumes the prior Friday and following Monday were trading days.

Valuation for mutual fund: 26 C.F.R. § 20.2031–8
Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company

In the case of a mutual fund, if the deceased died on a weekend day, the valuation (cost basis to whom inherits the mutual fund) would be that of the prior Friday assuming the prior Friday was a trading day.

Do these seem to be the correct official regulations concerning cost basis of inherited assets including stocks and mutual funds? Are my conclusions about the special case of the deceased dying on a weekend correct?

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