In a jointly owned property does a surviving spouse get a step up in cost basis?
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Two weeks ago you asked about stepped up basis on a property placed in a trust. Are you now asking about the same property or a different property? Please clarify who the owners of the property were, how each owner acquired his or her interest, and who passed away. Also, is the property the main home of the surviving spouse? Did the surviving spouse acquire the property by inheritance or was the surviving spouse a part owner prior to the passing of the deceased spouse?
"In a jointly owned property does a surviving spouse get a step up in cost basis?"
Sometimes, but more information is needed.
"Sometimes, but more information is needed."
Such as:
Was the property held in a trust?
If so, was the trust revocable or irrevocable?
Did the joint owners live in a community property state?
@TomD8, @Opus 17, @rjs My parents bought some property in VA in the 70's, the deed was in both names.
My dad passed away in 2001. My mother put the property in an irrevocable trust some 15 years later. She is still living. The property has been sold this year. I am trying to figure out the cost basis. Would it be the basis when she created the trust. I don't think it would. Would the basis be the purchase price of her half plus the stepped basis she would have inherited from my dad at his death? Or would that even apply?
I have some stock that is not publicly traded in the same situation. The stock is supposed to be sold at the end of this year. So I have the same question about that stock.
Thank you for the information.
@demitx475 wrote:
@TomD8, @Opus 17, @rjs My parents bought some property in VA in the 70's, the deed was in both names.
My dad passed away in 2001. My mother put the property in an irrevocable trust some 15 years later. She is still living. The property has been sold this year. I am trying to figure out the cost basis. Would it be the basis when she created the trust. I don't think it would. Would the basis be the purchase price of her half plus the stepped basis she would have inherited from my dad at his death? Or would that even apply?
I have some stock that is not publicly traded in the same situation. The stock is supposed to be sold at the end of this year. So I have the same question about that stock.
Thank you for the information.
In general, your mother would have received a partial stepped-up basis in 2001, so her basis in 2008 would have been half the purchased price, plus half the fair market value in 2001, plus the cost of any permanent improvements they have made. I don't know anything about selling property placed in trust accounts, but the basis in 2008 when the trust was created would be as I described.
Stock in a jointly held stock account would be treated similarly, purchase price with a partial basis adjustment in 2001. If the stock was solely owned by the wife, I don't think she gets a stepped up basis, and if the stock was solely owned by the husband, the wife probably gets a fully stepped up basis, but someone else should confirm that.
we cannot see the trust documents because irrevocable means nothing until certain events happen. Under the tax code this could be a grantor trust.
As a general matter, a “grantor trust” is a trust in which the grantor or other owner retains a sufficient level of power to control or direct the trust’s income or assets. If a grantor retains certain statutorily described powers over (or benefits in) a trust, the income of the trust is taxed to the grantor.
An “irrevocable trust,” however, may or may not qualify as a grantor trust. An irrevocable trust may be treated as a grantor trust if one or more of the grantor trust conditions set out in §§ 671 – 678 are met.
Under those rules, a grantor trust is any trust in which the grantor retains one or more of the following powers:
A reversionary interest of more than 5% of the trust property or income.
The power to revoke the trust and/or to return the trust’s corpus/principle to the grantor.
The power to distribute income to the grantor.
Power over the beneficial interests in the trust - the power to change beneficiaries
Administrative powers over the trust allowing the grantor to benefit.
A trustee, beneficiary, or other person a power exercisable solely by himself to vest the corpus or the income therefrom in himself.
if no trust returns have ever been filed or have been filed with this or a similarly worded statement on the 1041 page 1 its a grantor trust.
"Under the terms of the trust instrument, this is a grantor trust. All income
is taxable to the grantor as set forth under sections 671-678 I.R.C.
A statement of income, deductions, and credits is attached."
"My mother put the property in an irrevocable trust some 15 years later. "
There is no step-up in basis for property held in an irrevocable trust.
https://www.journalofaccountancy.com/news/2023/mar/no-basis-step-up-for-grantor-trust-assets.html
and just for clarity, the whole discussion of 'no step up' pertains to when the wife evenutally passes, right?
there is no question that there should have been a step up when the husband passed 20 years ago - as the property was not in an irrevoable trust at that time, right?
@NCperson wrote:there is no question that there should have been a step up when the husband passed 20 years ago - as the property was not in an irrevoable trust at that time, right?
Right. If the husband had a share of ownership (presumably it was JTWROS) then it would have been included in his gross estate and there would have been a step up.
Yes, that is exactly what I was asking. Would it just be half the ownership that got a step up or the entire value?
Thank you so much.
Her husband's share (that she, your mother, acquired) would be stepped up (so half).
That is the answer. Sometimes it is so hard to explain in a question online. So would it be just half that qualifies for the step up or the entire amount?
Half
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