Cost Basis on Inherited CD

Forum|Forum|1 year ago
March 12, 2025
1 reply
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Why would I receive a 1099-B on an inherited CD (TOD) that was allowed to mature (i.e., not cashed out prior to maturity)? Everything I read states that the face value of the CD is non-taxable to the recipient. This was a 15-month CD with semi-annual interest payments, which the decedent received before her death. I received the final 3-month interest payment and also received a 1099-Int. on this income. I just don't understand the additional capital gain due to the cost basis assigned to the CD on the date of death. Is there any special calculation method of cost basis for a CD that has semi-annual interest payments? Furthermore, why would I be responsible for a capital gain on a CD that was held until maturity? It was originally purchased at par, NOT on the secondary market.

JamesG1

IRS form 1099-B which records the maturity of a certificate of deposit generally reports the principal amount of the investment as both the Proceeds and Cost or other basis reporting $0 gain.

As you described, the interest income is reported separately.

In your case, what cost basis has been assigned and what explanation have your been given?

You may need to report The cost basis is incorrect or missing on my 1099-B.

@sbchapp

[Edited 03/13/25 | 6:53 pm PST]

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sbchappAuthor

The proceeds were reported as the face value of the CD and the cost basis was reported as the FMV, I assume, on the date of death. As mentioned earlier, the CD was held to maturity, and I contend there should be no gain. I was not able to obtain the calculation of the cost basis on the 1099-B from the brokerage firm which held the CD after it transferred to me. The brokerage firm just said the reported gain was due to the difference between the CD face value and the cost basis on the date of death.

RachelW33

You are correct, when you purchase a CD through your brokerage and hold it to maturity, there will be no gain.

However, in your case, your cost basis is not the face value of the CD, it is the FMV of the CD on the date of death. The market value of CD's held by a broker (unlike traditional bank CD's) fluctuate primarily due to changes in market interest rates. So the value of the CD was more when you inherited it than when it matured, this is why there is a gain reported.

For example if the CD that you inherited had a 5% interest rate but the market interest rate was 4.5% on the date of death, the CD would be worth more than face value at that time to account for it's higher rate.

As the CD gets closer to maturity, it's value will always gradually move to it's face value and be worth exactly it's face value when it matures.

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