Cost Basis of Inherited Stock

[RWG1950]

It has been my understanding that in marital property state, the death of a spouse of a jointly held brokerage account allows for a full step-up
in cost basis of the assets in that marital asset account for the survivor.
But what if one of the stocks in the account had been inherited from a parent decades earlier and it had gone down significantly since the date of inheritance.
I guess my question is what happens to the (unrealized) loss in that stock for the surviving spouse ?
Does a surviving spouse in this situation inherit the full loss, 1/2 of the loss, or none at all ?
Thanks for comments

[New York Enrolled Agent]

It has been my understanding that in marital property state, the death of a spouse of a jointly held brokerage account allows for a full step-up
in cost basis of the assets in that marital asset account for the survivor.
But what if one of the stocks in the account had been inherited from a parent decades earlier and it had gone down significantly since the date of inheritance.
I guess my question is what happens to the (unrealized) loss in that stock for the surviving spouse ?
Does a surviving spouse in this situation inherit the full loss, 1/2 of the loss, or none at all ?
Thanks for comments

I believe section 1014 provides that the fair market value on the day of death is used for valuation of these assets. This could result in a valuation either higher or lower than cost.

[RWG1950]

New York EA : Not sure that I understand your response. The stock has risen slightly since wife's April 2021 death.
My question relates to what happens to the unrealized loss in these shares prior to her death.
I had thought the reset point would be FMV on her April death. But if so, the husband is out of luck on selling to establish any loss ?
Had tried to get them to sell the shares for years to establish a loss but wife would simply not consider selling "Dad's" stock.
Thanks for your comment

[TaxGuyBill]

It has been my understanding that in marital property state, the death of a spouse of a jointly held brokerage account allows for a full step-up
in cost basis of the assets in that marital asset account for the survivor.

But what if one of the stocks in the account had been inherited from a parent decades earlier

It is NOT necessarily a step-UP. It can certainly be a step-DOWN. As was noted, it resets to FMV at death (or alternate date), regardless if it was up or down. So any unrealized gains or losses prior to death do not matter. And yes, if it was Community Property, that applies to 100% of it.

You also said the stocks were inherited from a parent years earlier. I'm not very familiar with all of the Community Property rules (and they can vary a bit by state), but you may want to double-check if it truly is Community Property or not. You said it was in a jointly held account so it probably is Community Property, but you still may want to verify that it isn't considered Separate property (again, that is not my area of expertise).