Does it matter from a tax standpoint if we mark sold investments as being inherited? Our brokerage transferred all the cost basis information when we received them.

Forum|Forum|3 years ago
April 2, 2023
2 replies
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Our brokerage tax statement was imported electronically and contains accurate dates and cost basis information. Asking because there are many (>170) entries (due to many subsequent dividend reinvestments) and it seems like a lot of work if it doesn't make a difference from a tax standpoint.

TurboTax Self Employed Online

rjs

Employee

Yes, it makes a difference.

(1) Any sale of an inherited investment is treated as long-term, no matter how long it was actually owned by you or the person you inherited it from.

(2) It's not clear what basis the brokerage "transferred." The basis of an inherited asset is the fair market value on the date of death of the person you inherited it from. Is that what the brokerage reported on the 1099-B, or did they report the deceased person's basis?

Did the "many subsequent dividend reinvestments" occur after you inherited the investment, or before? Reinvestments that were made before the date of death don't have to be treated separately, because they all get the date-of-death value as basis.

keithabrewsterAuthor

Thanks for your answer @rjs.

To clarify, when the investments were transferred from the trust of the person we inherited them from, they were transferred to in-kind investments (where possible), and the original cost basis (purchase date and cost) followed them. Our brokerage does have this cost basis information and did list it on the 1099-B.

Yes, the re-investments occurred after we acquired them, due to that option being selected for the individual investments. Because of the timing some of them are long-term and some short.

After asking this question, I discovered why turbotax was asking me to review these investments: one of the sales was missing cost basis information. Our brokerage listed it as "unknown". After some research I found out that this particular investment was somehow 'spun-off' of a related investment when that company merged with another creating the new entity. I assume that the cost basis is just the fair market value of that security on that date?

DavidD66

If your Form 1099-B is reporting the cost basis for the person you inherited the assets from, you need to adjust the cost basis for all of the assets. Your cost basis is the value on the date the person you inherited them from passed away. If there are more than a few assets that you inherited, I suggest that instead of reporting each transaction, you report summary totals. ou can enter category totals instead of individual transactions. To do so,

Click on Search
In the Search Window type 1099-B
Click on Jump to 1099-B
Click Add more sales (if the account you were trying to download is showing, delete it first)
Click on the box with Stocks, Bonds, Mutual Funds and click on Enter
On the Let's import your tax info screen, click on I'll type it myself at the bottom right of the page
Enter your Broker, and click on Continue
On the page with "Tell us about your 1099-B sales for this brokerage account" answer the question about employee stock & the number of sales, etc.
click the button "Enter sales section totals" and click on Continue
Locate your sales section totals on your 1099-B
Enter your Investment Sales Section Totals and repeat till you have entered for each category.

After entering all your sales section totals, Look for "Now we'll help you upload your 1099-B since the IRS requires a copy" and follow the instructions, or you can mail a paper copy of your 1099-B to the IRS. If you want to mail, click on "How do I mail my statement".

Take a moment to double-check that your statements are complete. For each sale listed, there should be:

- A Description
- Date Acquired
- Date Sold
- Sales Price
- Cost Basis
- Gain or loss for each sale
- A based on how the sale was reported to you and the IRS

In some uncommon cases, there will be an adjustment code and adjustment amount.

NOTE: Any sales summaries that include only Box A or Box D sales, and which have no adjustments to gain/loss, do not need to be included on a statement mailed to the IRS.

Here's how to mail your statements:

If you are e-filing your tax return, then mail your statements along with Form 8453 to:

Internal Revenue Service

Attn: Shipping and Receiving, 0254

Receipt and Control Branch

Austin, TX 73344-0254

If you are not e-filing, then mail your statements with your entire tax return to your local IRS office.

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Mike9241

in cases of inherited securities, I've seen brokers use market value on the date of transfer into the heir's account which can be substantially different from DOD values. be careful.