4

Can a wife get a step-up in basis on a mutual fund sale when the husband is deceased(fund was owned together, living in California)?

If so, do you just document the cost-basis research and then use those numbers when filing out tax forms?

Would you take half of the jointly owned fund (the deceased portion) and then step that up to price at the day of death?

Is there something that needs to be done in preparation for funds owned together but that haven't sold yet?

Are U.S. government bonds eligible to be stepped up?

I've searched for this info but I can't find documentation about it. Hoping turboTax will help, but I want to understand it first if possible.

thx!

3/25/18: Additionally, the mutual funds and bonds are registered in the name of a trust. Is there a difference if it is a trust or not?

3/28/2018: I am referring to US government savings bonds. Should they be treated like a stock?

  • I'm not sure but it may make a difference if you mean 'regular' (market-traded) US Treasury securities (or their derivatives like 'strips'), or US Savings Bonds (which are bonds but with many special rules different from other bonds). – dave_thompson_085 Mar 26 '18 at 0:42
3

IRS Publication 551 "Basis of assets" says there may be a step up of the entire basis (not just half).

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 includable in the decedent's gross estate

California is one of the states with "community property". Note that the form of ownership called "community property" is different from other forms such as "joint tenancy". (People who live in community-property states may choose to own property in other such ways.) The IRS discusses when property is indeed "community property" in Publication 555 "Community Property". Californians may also find useful information in that state's tax Form 1039 "Community Property / Decedent and Surviving Spouse".

How a trust affects the situation is a separate question, not least because each trust is set up with its own terms. It may be worth knowing that (as described in the instructions to IRS Form 1041) a "revocable living trust" designed to transfer property at death without the headaches of the probate system "is treated as a grantor type trust for tax purposes", and that "In general, a grantor trust is ignored for income tax purposes and all of the income, deductions, etc., are treated as belonging directly to the grantor."

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.