AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner practitioner and have performed fee only investment management and financial planning services for the past 11 years.
Expert: John D Smith, CFP Date: 2/11/2008 Subject: Mutual Fund handling - Inheritance/Disposition
Question I inherited a mutual fund from my mother. My name was on the account only because I was Power of Attorney. I received no financial gain from the account during her lifetime. My understanding is that the "cost basis" for this is the value of the fund on the date of her death and any disposition would be considered a long term gain/loss even if I disposed of it within a one year period.
I did close the account in two months and used 100% of the value to open an identical account, jointly with my wife. To me this was a transfer, to the financial institution, a sell and buy.
This resulted in a financial loss for income tax purposes since the value of the fund had decreased. Can I claim this loss on my tax return? I am concerned that it may be considered a "wash sale" and not allowable as a loss. Can you clarify?
Thank you.
Answer The cost basis of the mutual fund holding is the value as of the date of death or 9 months later. You can make this choice when settling the estate. You mentioned your name was "on the account" but only for power of attorney reasons. It is important to make sure this was the case because if you were placed on the account as an owner then 1/2 of the account would be deemed a gift to you and that 1/2 would retain your mothers cost basis vs receiving the step up in basis at death. The amount of tax due on the sale of the mutual fund is the difference between the step up in cost basis and the sales proceeds. Since the sale occurred within 1 year it would be deemed a short term gain/loss. In your instance it sounds like a loss. This is all assuming you sold the mutual fund position and placed the proceeds into a new account. If you transferred the shares of the fund into a new account vs selling and placing the proceeds into a new account, then no gain/loss is reported. I hope this helps clarify.
