Jointly held stock when spouse dies, reported as "inherited" on form 8949?

[CelBar]

I'm helping my mother do her taxes for last year. My father died towards the end of the year. They held some equity shares jointly in a trust account. After my father's death, the brokerage stepped up the basis on the shares 100%, because my parents live in a community property state. A month after my father's death, my mother sold some of these shares.

On the 1099-B that my mother received from the brokerage, it correctly reports the stepped up cost as the basis for the shares sold. In box 1b for date acquired, the 1099-B shows my father's date of death. The 1099-B also correctly shows the shares sold as held long term, even though the date acquired/date of death was only a few months before the shares were sold.

On form 8949 for date acquired should we just put the date reported on the 1099-B in box 1b, which is the date of death and therefore the date the cost basis on the shares were stepped up? Or should be put "inherited" as the date acquired (as discussed in the instructions for form 8949)?

As I said, the 1099-B is accurate. It shows the correct stepped up cost basis. So we're not correcting anything on the 1099-B (which as far as I understand would be the usual reason to put "inherited" for the date acquired--because one is reporting a basis other than what the 1099-B states). Anyway, I'm just not sure what to fill in for the date acquired and whether these shares are considered inherited, even though they were held in a joint account.

[KrisD15]

You want to indicate that it was inherited because besides the stepped-up basis for the gain, you need to indicate inherited for the long-term (more than one year) treatment of that gain. 

Inherited property is treaded as long-term. 

Long-term vs. Short-term  

[CelBar]

Thanks for the reply.

So the fact that the 1099-B correctly stipulates in Box 2 that the shares were held long term is not sufficient? In other words, the brokerage reported this to the IRS.

I should still ignore that the brokerage lists in Box 1b on the 1099-B the date aquired as my father's date of death? And instead put "inherited" as the date acquired?

After all, the IRS will see that my mother is filing jointly and that my father died. That information will be provided on the return.

[fanfare]

the only reason to say inherited is to get LT treatement.

if you have a consolidated 1099-B, you should find the broker already marked your sale as  "report with Box D checked."

If you only have a single 1099-B (this is not common), use Box D category

it is the box category that controls, not the date aquired.

@CelBar 

[CelBar]

@fanfareThanks for the reply.

Yeah, the 1099-B says "long" in Box 2 and under "Form 8949 Notes" it says "D" (it's not the most clear 1099-B I've ever seen).

Part of why I'm hesitating about how to fill that out is that when TurboTax walks you through things, it asks specifically if you bought the securities in question or inherited them, which I'm not sure has an obvious answer in this situation.

First, because these ETF shares are held in a trust account (where both of my parents have always been the beneficiaries), I'm not sure if technically my mother inherited them from my father and that's why she gets the step up in cost basis (even though really she always owned the securities as much as my father did). Second, I think originally my father inherited the shares from his father, so technically I don't think my parents did actually buy the shares themselves, as TurboTax asks.

But, all that said, it doesn't seem like this is why one is concerned about whether or not one inherited the shares. As you point out, it's entirely for the long term treatment (and I guess to explain the step up in cost basis?). All of which is accurately stated already on the 1099-B.

I just don't want to do something that's going to look weird to the IRS. But would it look more normal to just go ahead in put "inherited" or would it look more normal to just follow the 1099-B exactly (even though the date acquired is a month before the date sold, but they are long term shares)?

So for these reasons, I hesitate whether I'm supposed to label the shares inhertited and ignore the date acquired in Box 1B on the 1099-B. Or whether it's would be better to just follow what's on the 1099-B exactly, since that's what was reported to the IRS and it is accurate, as far as the cost basis is conerned and the specifiying of these being long term held shares and that box D should be checked.

[fanfare]

If you "ignore the Date Acquired"

what would you enter instead ?

it is the box category that controls, not the date aquired.

[CelBar]

@fanfare 

Thanks for the follow up.

In the date acquired box (Box 1b) on the 1099-B it has the date of my father's death, which is the date used for stepping up the cost basis. So normally it would seem I should just copy what's in Box 1b on the 1099-B to column 1b on form 8949. (But that looks a little weird, since the date the shares were sold were only a month later, even though the 1099-B says correctly they are long term shares.)

But if technically in this situation my mother inherited the shares from my father (even though they are held in a trust account for which they were both beneficiaries and now my mother is the sole surviving beneficiary), and this technical inheritance allowed for the cost basis step up on my father's date of death, or if technically the shares are inherited because my father inherited them from his father, then perhaps I am supposed to put "inherited" in column 1b on form 8949.

So either I'd put my father's date of death on form 8949 for date acquired (as stated in Box 1b the 1099-B) or I'd put "inherited."

[DianeW777]

Inherited would be the correct use for date acquired for your mother who inherited from your father.  This tells TurboTax that the sale qualifies for long term capital gain tax treatment.  The date of death is used to determine the fair market value (FMV) to arrive at your cost basis for sale. It is not considered for holding period.

Inheritance is always considered to have been held long term regardless of how long it was held by the deceased. I send my sympathies to you and your family.

@CelBar 

[CelBar]

@DianeW777  Thank you for the response and you kind words.

Can you confirm the following for me, which I have explained several times in this thread, but I don't think anyone has specifically clarified: Is it correct that these funds are considered to be inherited by my mother, even though they were held in a trust account, for which both my mother and father were equally beneficiaries (and co-trustees)? Unlike my father's IRA, which my mother clearly inherited, she always owned the funds in the trust account as much as my father.

This is why I remain a bit uncertain and confused. I understand that if it was a taxable account that my father owned in his name alone and that my mother inherited it, then the responses I have gotten in this thread would clearly apply, and "inherited" would be the appropriate entry for date acquired. But this was an account that my mother and father owned together equally. Yes , for the purpose of stepping up the cost basis, as far as I understand, the law/IRS treats it as if my mother inherited the funds from my father. But in another sense she did not really inherit anything. She always owned these funds.

This is also why it's confusing to me that the brokerage put my father's date of death as the date acquired on the 1099-B. Perhaps with a trust account this is the more appropriate information? And of course, I hesitate to enter something different on form 8949 than what is reflected on the 1099-B from the brokerage .

In any case, do you understand why this situation seems to me to be not exactly typical and why I'm uncertain if the general advise about inherited funds (which has been provided in this thread) applies to this specific situation?

Thank you.

[DianeW777]

Yes, I understand and I can confirm the cost basis for your mother.

The value/cost basis for your mother will be half of the original cost and half of the fair market value (FMV) on the date of death of her spouse.  

Basis Adjustment After Death of Spouse Joint Tenant. If spouses hold property as joint tenants, the surviving spouse's total basis in the property is the following: One-half of the FMV of property on the date of the decedent's death, plus. One-half of the original cost basis, minus.

Regardless of the date of death on the 1099-B, the selection of 'inherited property' should be used for the sale date for the inherited portion.

If your mother, before the death of your father, has a long term holding period (more than one year) you can feel confident to use the 'inherited property' because it will all have long term capital gains tax treatment, just like the half she inherited.  If your mother sold any of the equity shares that had a short term holding period (one year or less), split the sale in half to use your mother's actual holding period.  This would only need to be done if the holding period for the equity shares was short term before your father's death.

@CelBar