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Level 2

Do I have to use the "stepped up" cost basis?

I am preparing a 1041 estate income tax return.  My deceased mother in law had an investment account.  I know the original cost basis for each of the investments.  For some, the original cost basis is higher than the "date of death" cost basis (in other words, the mutual fund or stock had gone down in value between when it was purchased and when she died.)  Do I have to use the "date of death" cost basis in all cases, even when it is lower than the original cost basis?

Thanks.

2 Replies
Level 20

Do I have to use the "stepped up" cost basis?


@andy_howard wrote:

Do I have to use the "date of death" cost basis in all cases, even when it is lower than the original cost basis?


Yes, per I.R.C. §1014(a)(1) you must use the fair market value on the date of the decedent's death.

 

It is irrelevant that the value is lower than the original cost basis, unfortunately.

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Level 14

Do I have to use the "stepped up" cost basis?

and whomever inherits those investments can report the loss on THEIR tax returns if, when they sell, there is still a loss.  In other words, whomever inherits those investments does so at the market value as of the date of death.