Gift tax adjustment when transferring stocks between spouses

[bradmcnutt]

Hello,

I transferred some shares between my wife's brokerage account and my own.   When I sold those shares at a loss, the cost basis for them became the the value at the time of the transfer instead of what it was at time of purchase.   Am I stuck with this new cost basis?   Thank you for any help you can provide.

[tagteam · Accepted solution]

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@bradmcnutt wrote:

Am I stuck with this new cost basis?  

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No. With respect to transfers between spouses, the basis is treated as essentially a carryover basis; per Section 1041(b), your basis would be your wife's adjusted basis.

However, you may have to make an adjustment on Form 8949 if the brokerage firm reported the market value on the date of the transfer.

Also, with extremely limited exceptions, gifts between spouses are not required to be reported on gift tax returns (Form 709).

See https://www.irs.gov/instructions/i709#idm140554828335056

[KurtL1]

Per IRS Publication 551 - Basis of Assets:

If the Fair Market Value (FMV) of the property at the time of the gift is less than the donor's basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis.  Your basis for figuring loss is its FMV when you received the gift.

If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift.

[tagteam]

From Publication 551:

The basis of property transferred to you or transferred in trust for your benefit by your spouse (or former spouse if the transfer is incident to divorce) is the same as your spouse's adjusted basis.

[bradmcnutt]

That makes sense and is a relief.   I use turbo tax online and there's a checkbox to indicate that the basis is incorrect.  If you check it, you're given the opportunity to state the correct basis.   Looking at Form 8949, that's essentially what you're doing on there so I wonder if Turbotax is filling out that form for you.   I'm still going to try and convince the brokerage to fix this on the 1099.    Publication 551, as another poster mentioned, states this pretty clearly so hopefully that will enough.   Thanks again for your help.