Cost basis on inherited stock

Forum|Forum|5 years ago
June 25, 2020
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Since NY is not a community property state, what are the regulations for cost basis on a joint tenant w rights of survivor account and a tod?
Which IRS publication covers this?

thank you

Not A Product Question

TomYoung

Employee

Here's the IRS's short version, which then refers to Pub 555 "Community Property":

Inherited Property

The basis of property inherited from a decedent is generally one of the following.

The FMV of the property at the date of the individual's death.
The FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. For information on the alternate valuation date, see the Instructions for Form 706.
The value under the special-use valuation method for real property used in farming or a closely held business if chosen for estate tax purposes. This method is discussed later.
The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. For information on a qualified conservation easement, see the Instructions for Form 706.

If a federal estate tax return doesn't have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes.

For more information, see the Instructions for Form 706.

Appreciated property.

The above rule doesn't apply to appreciated property you receive from a decedent if you or your spouse originally gave the property to the decedent within 1 year before the decedent's death. Your basis in this property is the same as the decedent's adjusted basis in the property immediately before his or her death, rather than its FMV. Appreciated property is any property whose FMV on the day it was given to the decedent is more than its adjusted basis.

Community Property

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married individuals are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return.

For example, you and your spouse owned community property that had a basis of $80,000. When your spouse died, half the FMV of the community interest was includible in your spouse's estate. The FMV of the community interest was $100,000. The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). The basis of the other half to your spouse's heirs is also $50,000.

For more information on community property, see Pub. 555, Community Property.

IMG15Author

Hi and thank you for getting back to me.

My parents had a portfolio of stock in a joint account.

My dad died in March 2018 and my mom died in December 2018.

I know there’s the option to do a stepped up cost basis using my dad’s date of death. I’m being told that since NY is not a community property state, only 50% of the assets would get the stepped up cost basis.

I am trying to find the IRS publication that would cover this.

thanks again

TomYoung

Employee

Whose income tax return are you preparing and for what year?

Your parent's last income tax return (2018) should have been submitted by now, and if some stock was sold by your mother between the time of your dad's death and her passing the situation should be straight forward.

If your mom inherited dad's stock and you inherited your mom's stock then the "non-community property state" issue should be moot. All the stock you inherited would have a basis dictated by the fair market value of the stock on the date of her death.