capital gains on inherited investments
My wife’s mother passed away mid September 2021. My spouse inherited a portion of her portfolio with mutual funds and stocks, and put it in her own name in November. She received a 1099 showing a substantial capital gains. It appears that the full year’s capital gains was put on the account at the end of 2021. My question is this: does my wife owe taxes on ALL the capital gains (and dividends) even if the stepped-up basis didn’t begin until my mother-in-law’s passing? Or, is my wife responsible for just those gains/dividends earned after the stepped -up basis started?
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Terry Says
First of all NO ONE owes capital gains taxes until shares are sold. You’re saying your wife just transferred the account into her name. So I’m wondering why she received a 1099 at all. Yu need to contact the brokerage firm and ask about this.
Second, you need to get the September 30th month-end statement to establish the value of the shares as of the date of death. You’re correct that the value on the date of death (within two weeks, per the statement) is your wife’s new cost basis — WHEN,, if ever, she decides to sell.
I’m hoping the brokerage firm didn’t SELL anything — and thus there is no tax implication. And I’m assuming these stocks and funds were NOT inside an IRA (which has different withdrawal and tax rules).
Please write back and let me know what the brokerage firm says. If they made a mistake and sold shares instead of “re-registering” them, you have a good case for arbitration. And get a good CPA to review the forms they sent you.
