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Co-owned accounts & taxes
Old 02-06-2023, 06:53 PM   #1
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Co-owned accounts & taxes

My wife is co-owner on an investment account with her mother.
They thought it would make things easier and more accessible, but we are now wondering about the tax implications.

The accounts were originated by her mother and my wife was added instead of getting power of attorney access.

Taxable account worth $400,000. Mostly CDs and MM.

How is tax liability divided in this situation ?

Thanks as always for your comments !
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Old 02-06-2023, 07:14 PM   #2
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My DW is on a brokerage account of her mothers. The funds are in a MM account and a stock totaling a little over $400,000. The reinvested dividends get reported to my MIL on a 1099-DIV since she is the account holder. DW has no tax liability.
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Old 02-07-2023, 08:48 AM   #3
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OP - Just have the MIL claim the interest, as the money originated from her.
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Old 02-07-2023, 08:55 AM   #4
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Quote:
Originally Posted by Katoslake View Post
My wife is co-owner on an investment account with her mother.
They thought it would make things easier and more accessible, but we are now wondering about the tax implications.

The accounts were originated by her mother and my wife was added instead of getting power of attorney access.

Taxable account worth $400,000. Mostly CDs and MM.

How is tax liability divided in this situation ?

Thanks as always for your comments !
Usually there is a single TIN or SS# associated with the account and 1099s are issued to the owner of that TIN or SS# and they are responsible for reporting and any taxes.

In the case that you describe, typically the interest would be reported to the IRS in your DMIL's name and she would report the interest on her tax return. Assuming that is the case, no tax implications for your DW.

The one downside of having co-owners is that technically, if your wife were sued then your DMIL's account could be at risk, but that is what umbrella insurance is for.
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Old 02-07-2023, 10:15 AM   #5
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The primary (first) account holder is usually the one that gets the 1099s.
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Old 02-07-2023, 12:27 PM   #6
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Thanks for the comments and advice !
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Old 02-08-2023, 03:37 PM   #7
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If the joint account holds any assets that vary in price, like stocks, then your wife has lost the possibility of a stepped up basis in those assets I believe. That could have an impact on capital gains taxes in the future if those assets are sold after the mother's death. I would generally avoid being added as an account owner and simply rely on a power of attorney. This issue has come up here several times when a child has been added on as a joint owner of a home with the parent.
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