deceased investment account…
Upon selling the securities in an individual, non-qualified, account of the deceased account owner…how do the capital losses (in this case) work? Does the deceased individual have one last tax return for this year? What would happen if the securities don’t get sold until 2010…another tax return would have to filed in 2010 for the deceased?
Permalink Submitted by mk foss on Wed, 2009-12-30 18:58
A deceased individual files an income tax return for a short year ending with the date of death.
All securities owned by the decedent are revalued at the FMV on the date of death. If they’re mutual funds you use the net asset value, for stocks you use the average of the high and low price on the date of death.
A tax return will be due for the estate of the deceased person. The income is reported on Form 1041. The return does not need to be filed on a calendar year basis. For instance if the person died November 15, 2009 the return could go from 11/15/09 to 10/31/10 – a period that does not exceed 12 months. You need to get a special tax i.d. number for this return.
You need to check with an attorney to see what the legal requirements are in the state where the person died.
Permalink Submitted by Al Fry on Wed, 2009-12-30 21:11
And of course if these assets were transferred to heirs, they would get a step-up in cost basis, possibly lowering or eliminating the capital gains tax when sold by them (at least for deaths prior to 01.01.2010, 00:00 am, when carry-over basis kicks in).
Permalink Submitted by Alan Spross on Wed, 2009-12-30 22:42
Because of the situation described in the previous posts, seniors should be harvesting their tax losses every year, at least to the extent that they use the 3,000 capital loss limit. The senior gets a tax break for taking these losses but if they don’t the tax benefits of a loss are erased at death. The beneficiary’s basis is the DOD value regardless of whether that amount represents a gain or loss for the decedent.
As Al indicated, all these rules go into limbo in a few hours and we enter the world of retroactive Congressional legislation complete with pro active earmarks 🙂