Inherited stock

[MargaretMort]

I am under the impression that for inherited stock the basis is no longer figured from Date of Death but is the owner's original basis. I haven't been able to find anything that says yea or nay. What a pain if this is so.

I truly appreciate any help. Many thanks. MM

[mcb39]

Here is what I found in my Tax Insight Workbook: "If the estate of a U S individual who died in 2010 has a total FMV that does not exceed $1,300,000, the carryover basis rule additions will result in a FMV at date of death basis for all assets in the estate." That was sort of what I was gathering from the information I read at other sources, but nobody else put it in plain english.

I am sure someone smarter than me will concur or correct.

[Margaret CPA in OH]

Maybe check this on irs.gov http://www.irs.gov/businesses/small/article/0,,id=224515,00.html

Form 8939, not yet approved, is Allocation of Increase in Basis for Property Received from a Decedent. I have a copy of the draft dated June 1, 2010, but there are no instructions.

[MargaretMort]

Thank you both. I gather that no one knows what or how basis will be decided in the future as the info only refers to deaths after 12/31/2009 and by 12/31/2010. MM

[Margaret CPA in OH]

The Bush tax cuts were extended for 2 additional years but, as we know all too well, that can change any time. If the reason you are asking is for estate planning purposes, lots of luck! At least for 2010 and probably 2011 and 2012 deaths, there is a carve out for step up as noted in the IRS announcement. So I think it isn't a problem for surviving spouses or for others up to the limit. Personally, I don't have any clients or, sadly, family, that exceed those limits so I don't fret too much. I did have a client pass in July with about $2 million so am eager to have the 8939 approved for filing. We shall see...

[MargaretMort]

Yes, estate planning was what started this. The instructor in the tax class I took in Dec. mentioned then that stepped up basis had expired. I have stock that I bought back in the 80s that my children will inherit and I assumed--terrible thing to do, I know--they would get the stepped up basis. I don't plan to die in the near future but decided I had better make lists of what the kids will inherit. Their father and I never discussed any of this and, after he passed away in 2009, I kept telling everybody it was a good thing he died first because he wouldn't have been able to figure out any of this because I was the one who handled everything financial and he didn't want to hear about it. I don't want the kids and grandkids to try to figure out or even find original documents, etc., so I am getting everything together in one place.

Thanks for the help. Guess I will slog along and do what I can to make it easier. MM

[Margaret CPA in OH]

Did you inherit the father's assets (not sure if the father was your husband)? If so, you had basis step up at that time on those assets and that would carry through. Only assets in your own name from whenever would still have original basis as when you acquired.

Whatever you do to organize will be a wonderful gift. The man I mentioned earlier, along with his wife, had assets of over $5 million in 2000 without an estate plan other than a simple will. When asked if I could look over their tax return, I was taken aback when digging to find basis for a stock split for proper reporting. Very fortunately, although 88 by then, the man had kept scrupulous records of the basis of everything he and his wife acquired by inheritance from their families and all stock acquired since then. He had Procter and Gamble stock with basis of less than a penny by that time. He was a retired chemist hired in 1937.

Even with all this data, it took months to get everything organized, get a plan, establish trusts, split the estates (prudent then), and transfer a boatload of stock certificates from the safe deposit box into Schwab accounts. My fee was reasonable but it cost them a lot of money to do this. Your executor will bless you many times over!

[neilbrink]

Under the EGTRRA, however, the basis of property acquired from a decedent who died in 2010 is the lesser of the decedent’s basis in the property, or the fair market value of the property at the time of the decedent’s death.

However, EGTRRA allows an executor to increase the basis of property acquired from a decedent who dies after December 31, 2009 by $1.3 million ($60,000 in the case of a decedent nonresident not a United States citizen). The executor cannot, however, increase the basis in any property above its fair market value at the time of death.

Also, EGTRRA allows the executor to increase the basis of property acquired from a decedent who died in 2010 and that passes to the decedent’s surviving spouse by an additional amount of $3 million. The executor cannot, however, increase the basis in any property above its fair market value at the time of death.

Not all property acquired from a decedent is eligible for the new increase in basis allowance. There are some important rules for determining which property is allowed to receive an increase in basis; especially for jointly owned property, property held in trust, property subject to a power of appointment, community property, and property acquired by the decedent by gift within 3 years of death. You can find more information about property that is eligible for basis increase under Property Eligible for Basis Increase.

[MargaretMort]

Yes, my children's father was my husband. I wasn't sure if the stepped up basis on his half of the stocks would still apply. It is a real pain working this out because some is electric co. stock and the dividends were not taxable-up to $1500-for several years. I made sure to not sell those over the years. And then, of course, the stock split. As my husband passed away in Dec. 2009 I will happily go back and give half of the no basis shares FMV on date of death, plus the other dividends that had been reinvested and the later stock buy. Sure am glad I have no tax clients yet. I always file my return first and I don't even have all the necessary info plus my EFIN file is stuck somewhere in never-never land so I can't e-file anyway. Such fun this year.

Again, my thanks for all the help. MM

[mcb39]

Is it your EFIN that is in never-never land or your PTIN.? If it is your PTIN, you can go ahead and file as long as you applied in a timely manner. My condolences on the loss of your husband.