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re: Capital Gains at Death
Posted on 1/21/15 at 3:50 pm to LSUFanHouston
Posted on 1/21/15 at 3:50 pm to LSUFanHouston
How does a legatee determine the decedents adjusted basis in a closely held business interest? Do you know what your great grandfather paid for a family heirloom that you inherited but want to sell because it has no sentimental value to you?
You might as well assign zero basis and holding period to all inherited assets. Two problems that immediately come to mind. First, inherited cash would then result in an immediate tax liability at ordinary rates. Second, what happens if I own 500 shares of IBM, I inherit another 500 shares, and subsequently sell 200 shares of IBM? What ordering rules should apply to the shares I sold?
You might as well assign zero basis and holding period to all inherited assets. Two problems that immediately come to mind. First, inherited cash would then result in an immediate tax liability at ordinary rates. Second, what happens if I own 500 shares of IBM, I inherit another 500 shares, and subsequently sell 200 shares of IBM? What ordering rules should apply to the shares I sold?
Posted on 1/21/15 at 3:57 pm to Poodlebrain
Good points Poodle. Obviously determing the cost basis for stocks is considerably easier than for other assets. Perhaps they could be treated separately?
As for your second question, doesn't the IRS allow you to stipulate your ordering in some cases? I thought there were provisions for some distributions for qualified plans where you simply tell the IRS how you're going to do it? I could be way out of touch though.
As for your second question, doesn't the IRS allow you to stipulate your ordering in some cases? I thought there were provisions for some distributions for qualified plans where you simply tell the IRS how you're going to do it? I could be way out of touch though.
Posted on 1/21/15 at 4:18 pm to Poodlebrain
quote:
How does a legatee determine the decedents adjusted basis in a closely held business interest? Do you know what your great grandfather paid for a family heirloom that you inherited but want to sell because it has no sentimental value to you?
Well, for starters, it's up to the seller of an asset to show basis, right? In the absence of that, the basis is zero.
But the rule would only apply for assets transferred at death after the enactment of the new law. So if Allen started a company, who left it at his death to Bill, and then Bill dies after enactment of new law and leaves it to Charlie... your closely held situation would be very easy to figure out. Charlie would take a basis equal to the adjusted basis in Bill's hands when Bill died. Since Bill just died... it should be pretty easy to determine his basis - it's the stepped up basis Bill received when Allen died, plus/minus adjustments to basis while Bill held the interest.
quote:
You might as well assign zero basis and holding period to all inherited assets. Two problems that immediately come to mind. First, inherited cash would then result in an immediate tax liability at ordinary rates.
How can cash have a basis that is not equal to FMV? The basis of cash is always $1 for each $1 of cash held.
quote:
Second, what happens if I own 500 shares of IBM, I inherit another 500 shares, and subsequently sell 200 shares of IBM? What ordering rules should apply to the shares I sold?
This would be the same treatment as two blocks of shares that were purchased at different times by the same person.
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