I'm preparing the 1041 for an individual's estate and the personal rep closed out the brokerage accounts. She thinks the estate gets a step up in basis on date of death and doesn't have any capital gains to report. I'm not aware of an estate getting a step up in basis, only non cash assets that are passed along to a beneficiary. Can someone enlighten me about any such treatment of basis?
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"A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain -
If the brokerage account was in the deceased's name, everything in it got a stepped-up basis just like everything else in the estate that he/she owned outright. This would include stocks, furnishings, valuables, collections, cars, real estate etc. A brokerage account is a non-cash asset, unless the only thing in it was a cash account/money market account. And, if the brokerage account was liquidated, the brokerage custodian will certainly report the sales proceeds to the IRS, so the estate will have to report it. If it was done right away, there may be only a small gain or loss. Exception: any annuities would be excluded from stepped-up basis, as well as IRA/SEP/401k accounts. And US Savings Bonds/Treasuries.Last edited by Burke; 06-14-2016, 01:40 PM. -
It does seem to me that I read if value is higher than basis(FMV at death) when distributed then the estate and or heirs could have a taxable event occurring. Is this point still on the books?Comment
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Assuming the estate sells the stock then distributes the cash a gain would be reported on the K-1. If they distribute the shares then the gain would be realized when the bene sells the shares.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de TocquevilleComment
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Estate closed the accounts
The estate (personal rep) sold, the shares. Eventually the estate will distribute the cash to the beneficiaries. Since the estate is not a beneficiary I don't see that there could be a step up in basis when calculating the capital gain. I'm staying with the idea that the basis for the estate is the same as the decedent.Originally posted by DaveO View Post"A man that holds a cat by the tail learns something he can learn no other way." - Mark TwainComment
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Dan the Man
The decedent's basis in the stock IS in fact stepped up, and the ESTATE (1041) reports the gain or loss, measured by the proceeds of the sold stock versus the value of the stock on the date of death. Virtually ALL of his property is stepped up except for IRAs, installment sales, Savings bonds.
Since the stocks were sold and the money was not distributed, the estate has to report the gain (or loss), and pay the tax (if any) appertaining thereunto. Since no distribution was made to the heirs during the year, the opportunity to transfer the taxability to the heirs and away from the estate has been forfeited. Once the taxation (or loss) is reported by the estate with no K-1, the heirs do not have to worry about paying tax on the gain or deducting the loss.
Most likely there could have been some benefit in tax planning. The failure to distribute most likely means the estate paid a higher rate (if a net gain on all property) and failed to benefit (if a net loss). The gains or losses would have been more beneficial to the heirs on their personal returns in most cases. If the estate could not close fast enough to beat the fiscal year, the sales could have been postponed such that the taxability or loss be transferred in the same year as the final distribution.Last edited by Nashville; 06-14-2016, 04:12 PM.Comment
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Whoa there, No need to do that, just as Burke said, almost all assets in an estate get the stepped up basis. Stocks, houses, tractors, their collection of 1950's Pez dispensers, everything but a few exceptions such as IRA's and annuities. Don't make your client overpay!Originally posted by taxmandan View PostComment
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