Basis for Mutual Fund when spouse died in 2010 market is down.

[nwtaxlady]

Taxpayer sold off all his mutual funds that he & his spouse had bought 10 years ago. The spouse passed away in July and he sold off all the mutual funds in September. How would I figure his cost basis?

If I figure the cost basis of his 1/2 and then take the other 1/2 at value of her DOD, then there would be more of a gain. Usually when I do it this way it is half "stepped UP" in basis. But with the economy it would be a "stepped down" in basis then he would have more gain.

So my question is what is his basis? Is there a choice? Can we take all "their" basis, or do I have to do his 1/2 and then value on her DOD which would actually be stepped down in this case.

[Kram BergGold]

Step Down

If funds were jointly held you have a step down version of step up. There is no choice. Client should have asked for your advice before selling. Now client pays the tax.

[nwtaxlady]

Stepped down basis

Oh....I was afraid of that. No choice because he inherited her half. Ok.
Thanks for the reply!

[Jiggers]

Depending on tax bracket, the capital gains may not be taxed.

Also, you are not in a community property state, are you? If so, you get full step-up or step-down as in this case on both halves.

[Bees Knees]

If funds were jointly held you have a step down version of step up. There is no choice.

Not necessarily. In 2010, the executor can elect to apply carryover basis under the estate tax repeal rules. I haven’t looked into the details to see whether it could apply in this case, but if it does, the step up or step down basis rules would not apply.

Worth checking into anyway.

[Rae]

If funds were jointly held you have a step down version of step up. There is no choice. Client should have asked for your advice before selling. Now client pays the tax.

Do they EVER???? We always get the stuff when it's too late!