Tax Law (Questions About Taxes)/death stock cost basis
QUESTION: Father and adult son have been on a U.S. brokerage account as Joint Tenants for over about 15 years. Income and losses for all those years have been reported on the the parents joint tax return, with many years the son is a dependent. First question, once the father dies, the entire brokerage account will automatically go to the son, correct? (There is no provision by will or trust designating otherwise).
Second, does the date of death of the father become the new cost basis for all the equity holdings? I believe there is also the option to take the higher cost basis if it exceeds the date of death price. Are my understandings correct? Please correct, clarify or expand this topic. Thank you.
ANSWER: if material, you should consider revising your arrangement... how much is in the account?
is the account jt with rights of survivor? or joint tenants in common (BIG difference!) confirm with brokerage how it is titled.
adult son received a gift of half value when account established. THAT is the basis for half the account. this could (will) result in significant differences. assumes it is more than the then 10k gift rules means a return was due (and still is) and also means that some of estate/gift values are used. surely this was not done.
dod value is only applied to HALF the account. and no, you dont get cake and eat it too - dod value is dod value. not higher of basis or dod. you are also subject to step DOWN of basis too.
lastly, you need help. good help. if this is more than a few bucks! (of course I am willing to do your repairs - even post mortem if dad is already dead.)
---------- FOLLOW-UP ----------
QUESTION: The account is JT TEN, RIGHTS OF SURVIVORSHIP and >~90k. (value and basis alll over place in last 5 years due to market volatilty). Father still alive. It was my understanding once one party passes, then such an account was treated entirely as inherited to other with DOD as basis.
I am confused when you say half the account is based on when the account was estalished as obviously all kinds of gains/losses occured over the years. Are you saying that if the account was open with 10k, for example, then half still only has a basis of $5k and the other half DOD? If as your are saying, is each position halved? That would seem impossible to determine which is wy I thought DOD would be basis for all.
How could such arrangement be changed that might be "simpler"? The original intent of the account was to just pass it to the son.
ANSWER: half the account was gifted 5 years ago.
the dod will only apply to half the value.
lets say 10k 10 years ago. $5k gift to son then. $5k retained by dad.
value for all on dod is 40k
son has dod value of 20k for dad half of JT and original 5 k from original gift value.
lets say value 6k at dod
son gets $3k dod for dad's half and his original $5k gift. sale realizes $2k loss from $8k basis to $6k fmv... all to son. dad's lost basis is foregone forever (one reason why it is grand idea to always sell losers in old people accounts before they pass).
the foregoing is pretty simple. you just need to realize what the original value was. upon transfer (good if all one custodian).
plus, you add the half of the gains or retained dividneds etc. to the son - while dad picked up all income, it was really half son's income. which was "gifted" back to dad.
whole lot less worried if under $100k (as to original gift tax value, etc).
---------- FOLLOW-UP ----------
QUESTION: Where does this 5 year term derive from that half account is considered gifted? Is that ongoing, or 5 years back from a DOD? Also, how is basis affected if son deposited funds into the account that are now mixed into basis of various stocks?
Once dad passes, are a certain proportion of each stock designated DOD or can all of holdings of x, y, and z be designated one person's share or is there a choice?
term has nothing to do with it. could have been 20 years or three weeks ago.
you (son) get half when dad did the jtwros.
son gets HALF basis as he just did the reverse - gifted to dad. (ouch!)
half of everything is dod.
reason to "fix" while dad alive.