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can I declare a stock loss on small inheritance?
Old 12-10-2008, 01:51 PM   #1
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can I declare a stock loss on small inheritance?

Early this year a close relative died and left me a little money. I'd rather have the relative, but I'll take the cash, at least what's left of it. Here's the problem.

The process of settling the estate matters has taken the entire year to untangle. A mutual fund that is part of her estate has dropped in value along with the market. The tax basis on the estate was computed at the time of her death. I know this because I had to pay the taxes already.

The question: Can the reduction in value be seen as a capital loss since I assume ownership was established in January with a new cost basis? In spite of my wishes, the executor sold the fund to pay estate expenses. Does that lock in the loss from when ownership was established in January?

And the state estate tax I hope is deductible for my 2008's 1040 as well. Are they? I don't know why they put up with such an onerous state estate tax. No wonder the family farms are being sold off when the parents die. I don't even want to think about trying to push this sausage through the Turbo Tax grinder.
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Old 12-10-2008, 02:51 PM   #2
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CAVEAT: I am neither a lawyer nor a CPA and know nothing about this other than my own experiences.

My opinions are:

1. You don't have to pay the estate tax - - the estate does. So, since you didn't have to pay it, I don't see how you could deduct it.

2. The same goes for any drop in that mutual fund prior to the distribution from the estate. The estate experienced the loss, not you.

OK, now let the lawyers take this one on.
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Old 12-10-2008, 04:19 PM   #3
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Hope this helps !


By Kimberly Lankford
October 15, 2001


I inherited stock worth $67,000 in May 2000 and sold it for about $64,000 in March 2001 to make a downpayment on a house. I don't owe tax on the whole $64,000, do I? I only owe the difference between the original cost and the selling price, right? When you inherit stock, your cost basis is generally the stock's value when the previous owner died. This is called the "step-up in basis," which means that nobody ends up paying taxes on the gains the stock had while the original owner was alive.
Your cost basis, for example, would be $67,000.
Now the good news: Since you sold the stock for less than your basis, you'd have a $3,000 capital loss. Inherited stock is automatically considered a long-term holding, regardless of how long you've owned it. So you can first use that loss to offset any long-term gains (from stocks owned more than a year); then use any left-over losses to offest short-term capital gains (from stock you've owned for less than a year). If you still have losses left over, you can deduct them from your other income. Anything left over from 2001 can be carried over to future years.


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Old 12-10-2008, 06:13 PM   #4
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Moe's quote conforms with my understanding.
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Old 12-10-2008, 06:17 PM   #5
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Originally Posted by Want2retire View Post
The same goes for any drop in that mutual fund prior to the distribution from the estate. The estate experienced the loss, not you.
mom's estate is not yet altogether distributed as we have the house in the estate name for liability purposes. our accountant told us that we will get the capital loss write offs ($3k/year each for life plus some room to spare in case we are taxed also in the the afterlife) upon final distribution. i think the reasoning is that, basically, we are the estate. but as we do still submit annual tax returns for the estate, separate from our own, now i really have to go back and confirm this.
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Old 12-10-2008, 06:55 PM   #6
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Originally Posted by lazygood4nothinbum View Post
mom's estate is not yet altogether distributed as we have the house in the estate name for liability purposes. our accountant told us that we will get the capital loss write offs ($3k/year each for life plus some room to spare in case we are taxed also in the the afterlife) upon final distribution. i think the reasoning is that, basically, we are the estate. but as we do still submit annual tax returns for the estate, separate from our own, now i really have to go back and confirm this.
Same here. Last weekend the estate's CPA was paid for doing this year's tax return for the estate, separate from our own. Immediately after that we got the final distribution consisting of what was left over after paying him.

Guess I will have to ask the executor about it.
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Old 12-11-2008, 10:04 AM   #7
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Thanks for the responses. I can see that this years tax return is not going to be a quick study.
If the estate sells the stock and distributes the cash, then there is no capital loss I can claim on the distribution, even though there was a loss between the time of death and the time the shares were sold? But if I had taken possession of the stock/fund shares, then I could? BTW, I never had this option even though I asked that the shares not be sold.
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Old 12-11-2008, 10:59 AM   #8
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This may be the year to hire a CPA to sort your taxes. Turbo-tax missed a unique situation for me once and I had to argue with the IRS for 3 years.......
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Old 12-11-2008, 11:00 AM   #9
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Quote:
Originally Posted by tightasadrum View Post
Early this year a close relative died and left me a little money. I'd rather have the relative, but I'll take the cash, at least what's left of it. Here's the problem.

The process of settling the estate matters has taken the entire year to untangle. A mutual fund that is part of her estate has dropped in value along with the market. The tax basis on the estate was computed at the time of her death. I know this because I had to pay the taxes already.

The question: Can the reduction in value be seen as a capital loss since I assume ownership was established in January with a new cost basis? In spite of my wishes, the executor sold the fund to pay estate expenses. Does that lock in the loss from when ownership was established in January?

And the state estate tax I hope is deductible for my 2008's 1040 as well. Are they? I don't know why they put up with such an onerous state estate tax. No wonder the family farms are being sold off when the parents die. I don't even want to think about trying to push this sausage through the Turbo Tax grinder.
The estate should pay the estate tax, not you.
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