IRD Deduction

Submitted by Mark Hilgenberg on Wed, 2008-01-16 20:29

A client took company stock via NUA several years ago, held the stock, and died. If the spouse inherits the stock does she need to hold the stock until her death in order to use the IRD that is still in the stock, or can she sell now, pay some taxes on the NUA and carry the IRD until she dies?

Thanks,

Mark

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Permalink Submitted by Alan Spross on Wed, 2008-01-16 21:19

Mark,
She has the same options that her husband did, so she can sell the shares any time she chooses. .

She does not get a step up in basis for the NUA, but if there are additional gains since the original distribution, she does get a step up on those additional gains. And any further gains after client’s death would be taxed at her LT cap gain rate. This would require an explanatory statement added to her Sch D to explain her basis calculation. Her basis per share would be the original cost basis plus any step up on gains above the NUA amount.

If by chance there was any estate tax due on husband’s estate, she would have a potential IRD deduction as she reports NUA upon selling the shares. And if she does not sell shares before passing, her beneficiary would in turn inherit remaining NUA (IRD).