Inherited stocks sold, split with sibling - how best to report?

[Slappy McGee]

My wife's father passed away in September 2023; she and her sibling, per his will, split everything 50/50.

He had a number of stocks, held at a different brokerage than my wife's. To keep things simple (in theory, at least!) all were sold two months after he passed; half of the cash proceeds were wired to my wife's 

brokerage, half to her sibling's.

The account in which the stocks were held and then sold in was in both my wife's and her sibling's names; in theory, I'd like to import the 1099-B into Turbo Tax, but the import isn't going to magically split everything in half, so am I better off just trying to enter everything manually? Or go ahead and do the import and adjust every single sale, proceeds and cost basis, accordingly? Neither sounds very appetizing and ripe for potential error, but I don't see any other option!

To the extent it matters, almost all of the positions declined in value from the date acquired to the date of sale, leading to a fairly substantial net capital loss - one that we'll be able to carry over for years to come and use to offset any future cap gains (assuming, of course, that I report everything accurately).

Regarding the IRS, should I worry that what's being reported to them by the brokerage, which is of course the total acquisition and sales numbers, won't match what I'll be reporting in our joint return (which of course will/should be exactly half of what was reported to the IRS)?

Thanks so much for any insight/advice/wisdom! I probably should have started this process earlier (or hired someone else to do my taxes, given the complexity) but I've done them myself for decades using the wonderful TT so why stop now?

[DianeW777]

Yes, entering manually will keep it clean and an import could bring the entire sale which would be much more tedious to maneuver and adjust.

Cost basis is important for your spouse and sibling.  The cost, for inherited investments, for each of the siblings is what the value was on the date of death and not what her father paid for them.

You can choose to do summary totals and send a Form 8453 with the 1099 after you receive acceptance of the tax return. I will also provide nominee procedures to use if necessary should only one social security number (SSN) be listed on the 1099-B. Check the actual form in the online account, or review the paper copy if you received it.

1. Long term: held more than one year (one year plus one day)
2. Short term: held one year or less

Please the information above to properly report your stock sales. Your brokerage statements should include a summary of your transactions, grouped by sales category, for example, Box A short-term covered or Box D long-term covered.  Use direct entry if you choose, with summary totals and ignore import.

If you are e-filing your tax return, then mail your statements (1099-Bs or other document showing detailed sales information) along with Form 8453 to: 

Internal Revenue Service

Attn: Shipping and Receiving, 0254 

Receipt and Control Branch 

Austin, TX 73344-0254

Check the box for Form 8949 (this form is really just a cover sheet)

Nominee Returns.  This is how the IRS knows what you are doing. 

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list name of SSN as the payer and the other owner, as the recipient. On Form 1096, list name of SSN as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here:

• Form 1096
• Form 1099-B
• Form 1099-DIV

Please update here if you have questions and we can help. It sounds like you are a pro and thank you for your continued support.  I am sending sympathies to your, your wife and family.

[Slappy McGee]

Wow, thanks so much for the detailed reply! 

I was aware that my wife's cost basis is the date her father passed; the stocks were sold two months later, most for a loss, given market declines over that time. So we racked up some hefty capital losses that I assume we can carry over to future returns to offset any gains?

I did read that inherited stocks, no matter how soon they were sold, get to pay long-term cap gains rates? There were a few that did go up from September to November, so I'm wondering/hoping TT will allow me to properly tax those at the long-term rates?

Thanks again for your help, and sympathies.

[fanfare]

It is the Box category on Form 8949 that determines LT or ST regardless of Date Acquired.

did both siblings receive 1099-B or only one of them?

@Slappy McGee 

[fanfare]

If the accounts were in your name(s) you did not inherit anything.

If his name is on the account it seems he is a one third owner with a step-up-basis at time of death.

you both inherited his third which will have the high basis.

This is my opinion, I'm not a tax advisor. 

P.S.

If your names were on the account, why did you let such large losses accrue ?

Or did you find out about this account after he died.?

@Slappy McGee