Determining the cost basis of jointly held stock when one spouse dies.

[skid-plebobo]

Example: In a jointly held brokerage account, 200 shares of stock have a cost basis of $20 per share. At the time of one spouse's death (30 years after the stock was purchased), the fair market value of the stock is $40 per share. The stepped-up cost basis of the 200 shares is (100 shares at $20/share and 100 shares at $40/share) $30 per share. After a couple of years, the surviving spouse wants to sell 50 shares of stock at $60 per share. What is the cost basis for capital gains tax on those 50 shares? If the first in/first out (FIFO) method of accounting is used, then are those 50 shares the surviving spouse's non-inherited shares (since the surviving spouse inherited the deceased spouse's shares 30 years later)? If so, then the cost basis of those 50 shares should be $20 per share, not $30 per share. Any comments?

[Mike9241]

do you live in a community property state?   for some states you have 100 shares with a cost basis of $20 each that has the original acquisition date and 100 shares with a cost basis of $40 that has an acquisition date that is the date of his death.   so on a FIFO basis you would be selling 50 of the original shares with a cost basis of $20 each. 

other states might have laws that provide that 1/2 of each share gets the original basis so $20/2 + 1/2 the date of death value so $40/2  so each share now has a tax basis of $30.

in a community property state all the shares would get a tax basis of $40.