Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
"step up in basis" rule
Old 07-17-2015, 10:57 AM   #1
Recycles dryer sheets
ratface's Avatar
 
Join Date: Jan 2009
Posts: 212
"step up in basis" rule

My question is on the clarification of this federal tax code rule. My understanding is that capital gains tax is forgiven at death for inherited property. "Someone who inherits stock or other property and later sells it is subject to capital gains tax on the difference between what the stock was sold for and what the stock was worth when inherited. The capital gain from when the stock was purchased to when it was inherited is taxed at zero. "

Dose anyone have experience with this type of transaction and can verify that this rule is in fact true? My situation would involve selling ATT stock inherited in 1998 at a cost basis of $53 and selling it today at $35. Would this then be a capital loss and incur no tax or would it still be treated as a capital gain under my marginal tax rate of 25% married filing jointly giving me a 15% tax rate on the sale of long term capital gains?

My plan if it makes sense is to payoff two separate Parent Plus student loans of appx. $21K each with monthly interest rates of around 8% which are costing me around $150 a month combined.
__________________

__________________
ratface is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-17-2015, 11:31 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Amethyst's Avatar
 
Join Date: Dec 2008
Posts: 5,887
Ratface!! I was just thinking of you the other day and wondering how you were doing, since I have not seen you on the forum since you shared your cancer battle with us years ago.

I will leave your question to the forum tax experts, although it sounds like a nice little capital loss to me...one you could set against any capital gains you happen to have.

Amethyst
__________________

__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success to be able to spend your life in your own way. Christopher Morley.
Amethyst is offline   Reply With Quote
Old 07-17-2015, 11:51 AM   #3
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Quote:
Originally Posted by ratface View Post
Dose anyone have experience with this type of transaction and can verify that this rule is in fact true? My situation would involve selling ATT stock inherited in 1998 at a cost basis of $53 and selling it today at $35. Would this then be a capital loss and incur no tax or would it still be treated as a capital gain under my marginal tax rate of 25% married filing jointly giving me a 15% tax rate on the sale of long term capital gains?
It's treated as if you bought the stock for 53 in 1998. Thus, it would be a LT capital loss, which would be applied first to LT gains and then to ST gains. If you still have a net loss, you can take a $3,000 deduction against ordinary income. If anything is still leftover, you must carry the remaining LT loss forward and repeat the process next year, and so on.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 07-17-2015, 11:52 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,364
Yes. I think of it as a reset of the cost basis. Note that T stock has split and spunoff other companies myriad ways over the decades and those events also adjust the cost basis. Which, if any, have happened since 1998 I don't know. T is so widely held there exist apps that help you figure the proper cost basis.
__________________
GrayHare is offline   Reply With Quote
Old 07-17-2015, 12:00 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Apr 2013
Posts: 5,581
That's how it worked when DF passed. Had nice losses on a few funds that I already owned in my rollover IRA , wrote off 3k in losses.
__________________
MRG is offline   Reply With Quote
Old 07-17-2015, 01:29 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,439
Yes, any gain between the fair value at the date of death and the decedent's cost basis is not recognized. The beneficiary's basis is the fair value on the date of death. Assuming that is $53, you would have an $18/share capital loss that can be used to offset other LTCG you may have or $3k/year of it is used to reduce ordinary income.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 07-17-2015, 03:06 PM   #7
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
If you hold 1,000 shares of T, the dividend is covering the loan payment...

But you are paying some tax on the dividends, correct?

How about gifting him the stock, especially if he is in lower bracket? Then he uses dividends to make the loan payments.
__________________
target2019 is offline   Reply With Quote
Old 07-17-2015, 03:46 PM   #8
Recycles dryer sheets
 
Join Date: May 2015
Location: NorCal
Posts: 74
My understanding is you get the step up in basis unless the assets were held as joint tenants and the joint tenancy is between a parent and child.
__________________
FIREd_2015 is offline   Reply With Quote
Old 07-17-2015, 04:53 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,620
Quote:
Originally Posted by GrayHare View Post
Yes. I think of it as a reset of the cost basis. Note that T stock has split and spunoff other companies myriad ways over the decades and those events also adjust the cost basis. Which, if any, have happened since 1998 I don't know. T is so widely held there exist apps that help you figure the proper cost basis.
This post is so true. It is very unlikely that ATT stock shares acquired in 1998 have a loss today, but it is possible because value could have gone to spin-offs. There has been a reverse split, too.

See, for example, How to calculate your cost basis and access cost basis worksheets | Investor Relations | AT&T
__________________
LOL! is offline   Reply With Quote
Old 07-21-2015, 10:29 AM   #10
Recycles dryer sheets
ratface's Avatar
 
Join Date: Jan 2009
Posts: 212
Hi Amethyst, It's so nice to be remembered. I'm doing remarkably well. Target 2019 unfortunately I don't have 1000, only about 500 shares. Nonetheless it seems the prudent thing to do is get rid of the student loan interest since the stock sale should not hurt me too bad. I failed to realize that the non-subsidized loans started accruing interest immediately. I was under the impression they were deferred until six months after graduation. I see why so many people get in trouble with these loans, seems a bit on the loan sharking side. I was holding off paying because in case of the death of the borrower, "Me" the loans are forgiven and as Amethyst remembers my past health has been questionable. I'm thinking it's best to just pay them off asap.
__________________
ratface is offline   Reply With Quote
Old 07-21-2015, 04:26 PM   #11
Recycles dryer sheets
 
Join Date: Jan 2010
Posts: 183
As others have pointed out, in general, you assume the cost basis based on the price at the day of death. Note, this may vary based on where/how the stock was held before you inherited it (trust, joint in community property, etc).
You can use the calculator on AT&T website to find the adjusted cost-basis based on spin-off/splits and other such events. Use the appropriate link from the left margin.
Cost Basis Guide | Investor Relations | AT&T
__________________
pixelville is offline   Reply With Quote
Old 07-21-2015, 06:14 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 1,661
Quote:
Originally Posted by ratface View Post

Dose anyone have experience with this type of transaction and can verify that this rule is in fact true? My situation would involve selling ATT stock inherited in 1998 at a cost basis of $53 and selling it today at $35.
be a little careful with this one. ATT spun out lucent in '96.. yes this does not involve you. But ATT likely spun out other companies like LU did, and this could effect you basis. ATT was bought by a baby bell that change it's name to ATT... which could have effected your basis (not sure how they did this was dpne). you need to track all the splits, spin offs, buy outs an how these effected shares. you can't just look at snapshots of inherited and sold days. If it is anything like Lucent... you have a lot of work ahead to sort this out.
__________________
bingybear is offline   Reply With Quote
Old 07-21-2015, 06:40 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,718
Quote:
Originally Posted by bingybear View Post
be a little careful with this one. ATT spun out lucent in '96.. yes this does not involve you. But ATT likely spun out other companies like LU did, and this could effect you basis. ATT was bought by a baby bell that change it's name to ATT... which could have effected your basis (not sure how they did this was dpne). you need to track all the splits, spin offs, buy outs an how these effected shares. you can't just look at snapshots of inherited and sold days. If it is anything like Lucent... you have a lot of work ahead to sort this out.
There are tools both at the ATT web site and here: for free on att basis:A T & T and here for 119 going all the way back before the big spinoff AT&T Cost Basis your fortunate that the stock did not predate 1984 or you would have a lot more to worry about. (All the baby bells and their merging and the like)
__________________
meierlde is online now   Reply With Quote
Old 07-21-2015, 06:59 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 1,661
Quote:
Originally Posted by meierlde View Post
There are tools both at the ATT web site and here: for free on att basis:A T & T and here for 119 going all the way back before the big spinoff AT&T Cost Basis your fortunate that the stock did not predate 1984 or you would have a lot more to worry about. (All the baby bells and their merging and the like)
Nice that ATT had the data setup for the investor. I remembering having to pull my LU info for others that had not kept all the spin off data when they sold LU stock.
__________________
bingybear is offline   Reply With Quote
Old 07-21-2015, 07:09 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,472
Cost basis is on the end of the day of death. My dad passed on a weekend and the cost basis of everything was based in the end of the day the Friday before. My sister and I were staring at 11K shares of Chevron stock each. We both diversified as quickly as we could as it was 2009 and everything was on the way back up. There were other investments as well, and everything was figured on the cost basis on the day of death.

Selling at a loss allows for a capital loss spread over years. The previous post regarding the $3K/yr limit is correct. But it can be spread out over years. So keep really good records.


Sent from my iPhone using Early Retirement Forum
__________________
EastWest Gal is offline   Reply With Quote
Old 07-21-2015, 08:09 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,930
Quote:
Originally Posted by FIREd_2015 View Post
My understanding is you get the step up in basis unless the assets were held as joint tenants and the joint tenancy is between a parent and child.
Here is something about jointly held property.....Basis of Inherited Property (Community and Non-Community Property) - CFP | Investopedia

What happens to the basis for jointly held property?

Non-Community Property:
Property held jointly receives a "step up" to FMV for the portion of the property that belonged to the decedent.

Community Property:
Property held jointly receives a "step up" in basis to FMV on both halves at the death of the first spouse.
__________________
kaneohe is offline   Reply With Quote
Old 07-21-2015, 09:43 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,040
Many posters have alluded to the fact that there have been multiple mergers/spinoffs/reorganizations to the corporations now known as AT&T. You can't just take the stock price of AT&T on the day you inherited it and use that as a basis as it is not the same company now that it was in 1998! In the interim you have received other distributions as part of the reorganizations/spinoffs and each time you had to re-allocate your basis between what you owned before the reorg/spinoff and what you owned after the events. It is rather convoluted, I've attached a chart from AT&T Corp Flowchart
You've got to first determine exactly what you inherited in 1998 and what's happened since then.
Attached Images
File Type: jpg Capture.JPG (88.4 KB, 10 views)
__________________
RE2Boys is offline   Reply With Quote
Old 07-22-2015, 09:03 AM   #18
Recycles dryer sheets
jetpack's Avatar
 
Join Date: Aug 2013
Posts: 318
The splits are indeed confusing. I just went through inheriting AT&T stock a few years ago (along with all the spinoffs). You should have shares of Comcast as well? ... Unless it was SBC shares you had?
__________________

__________________
jetpack is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bengen on his "4% rule" Onward FIRE and Money 40 03-07-2012 08:29 AM
Adjustment for using the year's high with the "4%" rule? bamsphd FIRE and Money 18 05-03-2011 04:32 PM
Question about the "Wash Sale Rule" FIREd FIRE and Money 2 10-08-2009 04:35 PM
Questions about "cost basis" for fund sales roger r FIRE and Money 6 01-10-2008 03:33 PM
"Will the 70% Rule Apply to Your Retirement?" Nords Young Dreamers 2 07-19-2004 11:58 AM

 

 
All times are GMT -6. The time now is 02:09 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.