Cost Basis
As this is a non-IRA question I will understand if it is deemed to be inappropriate for this forum……..Situation is an account titled in the name of an individual……The individual changes the title to a joint tenancy with rights of survivorship with a non-spouse person. The original person dies…..the survivor instructs the B/D to do a 100% “step-up” of the cost basis, instead of the customery 50%….reasoning is that the “2nd” person never contributed any cash/securities to the account…..Do you believe the IRS will accept this rationale?…..Thanks…james
Permalink Submitted by Alan Spross on Wed, 2012-09-05 23:23
This is a frequent occurrence with an elderly parent and children that includes the SSN of the parent on the account. But the IRS will accept this in other cases as well.
If the parent or first joint tenant to pass contributed the full amount of the purchase price and the surviving tenant did not contribute any part of the purchase price, then the presumption is that the full value will be included in the first joint tenant’s estate (Sch E, Form 706). As such there will be a 100% basis adjustment. If the purchase price was provided in different %s, then the basis adjustment would only apply to the portion of the value that is included or would have been included in the decedent’s estate. There could be cases where local law has an impact on this treatment if the law specifies differently.
While estate tax filings are comparatively rare now, the second joint tenant could be asked to provide evidence that the first JT provided all the funds.
Permalink Submitted by mk foss on Thu, 2012-09-06 16:39
In my experience IRS presumes that whomever died first ws the 100% owner and the co-owner has to prove that they contributed to the purchase. This was based on collecting the maximum amount of estate tax. Now that income tax is a greater threat than estate tax, this presumption could change.
Permalink Submitted by James Rosato on Thu, 2012-09-06 17:05
Thank you both for responding……jr