Inherited mutual fund portfolio
I have a question regarding an inherited mutual fund portfolio. It is my understanding that an inherited mutual fund portfolio does not have a set-up cost basis. I have a client that has inherited a rather large mutual fund portfolio that has lost considerably – based on my understanding any loses can be stretch over a period of years until the loss have been all accounted for. Do I need to find out what the original cost bases was? Or do I need to find out the value of the funds at the time my client inherited the portfolio – to calculate the amount of loss and the number of years that the losses can be used??
Permalink Submitted by Eric Woodfill on Thu, 2011-06-02 22:12
No qualifed account – sorry
Permalink Submitted by Alan Spross on Thu, 2011-06-02 22:20
I assume this is a taxable account, not an IRA.
If the decedent had a large estate and the death was in 2010, there is an option whether to get the basis adjustment or not. Most estates will elect the basis adjustment do the date of death. If the losses occurred after the date of death, any share sales would have a LT cap loss. This loss can be used without limit to offset cap gains, and up to 3,000 can be applied against ordinary income.
So if this is all the client has, and if he sells enough shares for a 30k loss, it will take 10 years to use up that loss. You need the date of death value of the shares. All gains or losses of shares existing at the death will be LT gains or losses from the date of death value. If distributions are reinvested in more shares after the death, those shares will have their own basis not affected by the basis adjustment.
As indicated, there is no deadline to use the losses other than his own lifetime, and if he holds the shares and they rise, the losses would turn to gains automatically.
If the shares were in a tax deferred account, then there is NO basis adjustment at the death of the owner.