Stepped Down Cost Basis?

Discussion in 'Stocks' started by VoodooMMI, Dec 25, 2008.

  1. I know, if you inherit stock, that you can step up the original cost basis to the value on the date the person died. For example, your father bought WMT stock on June 6th, 1986 at $3.09 per share. He died on November 19th, 2008 when WMT closed at $51.00 per share. You inherited the stock from him. Your cost basis is now $51.00 per share and NOT the original cost basis of $3.09 per share. However, can this work against you as well? Let's say your father bought GM stock at $72.69 on January 2nd, 2000. He died on November 19th, 2008. Is you cost basis now the price on November 19th, 2008 which was $2.79 per share? If so, you just lost a big write off. Would it help any if your father's stock was sold before he dies, let's say the stock was sold on November 12th, 2008 for $3.08 per share. Certainly his estate could use that realized capital loss to offset any realized capital gains. But if there are no realized capital gains, I know the estate could write off $3,000 against ordinary income, but what about the rest of the realized lost, does that tax benefit cease to exist when the owner dies?
  2. An interesting but creepy question!:D :D
  3. I went over to and found the answers. First on page 9 of Publication 551: "Inherited Property - Your basis in property you inherit from a decedent is generally one of the following. 1) The FMV of the property at the date of the individual's death." There are 3 other listings but #1 was the situation that I was looking for. On a related issue "What happens to a decedent's capital loss?", I found the answer on pages 65 and 66 of Publication 550. "Decedent's capital loss. A capital loss sustained by a decedent during his or her last tax year (or carried over to that year from an earlier year) can be deducted only on the final return filed for the decedent. The capital loss limits discussed earlier still apply in this situation. The decedent's estate cannot deduct any of the loss or carry it over to following years." So, if you had a big loss in 2008, you better live long enough to make gains to cover it. Otherwise that tax write-off will die with you.
  4. if your examples are true to life ... find a good tax attorney... QUICKLY
  5. the probate attorney will request documentation of the value of the asset at time of death. that is your new basis. a brokerage account statement for day of death will surfice.
  6. "Sell in May and go away"

    Might be a good time to pull the plug on Aunt Mildred.
  7. I used some real stock prices from real dates, but I am not going through this now. I'm always trying to plan ahead though.
  8. I'm not quite sure if you can just use the closing price on the date of death as FMV or if you have to average the high and low price for that date to use as the FMV. For estate tax purposes, from page 14 of the Instructions for Form 706 "The FMV of a stock or or bond (whether listed or unlisted) is the mean between the highest and lowest selling prices quoted on the valuation date." Although, if estate tax does not apply because the estate is below the exclusion amount, closing price might be sufficient. In general we are not talking about a big difference most of the time, although I'm sure there are instances of very high price swings in just one day, for example, October 19th, 1987.