Title says it all; does the basis remain when my wife inherits my investments, or do they get reset to zero? Is it the same for Federal and New York State?
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New York is an equitable (separate) property state. So the answer to your question will depend on how much (if any) if your investments your wife is deemed the owner of under NY law.
Anything your wife inherits from you will have its basis raised (or lowered) to current market value on the date of death. Anything she already owns does not get an increased basis. If she is considered a one-third owner, her basis goes up on two-thirds. If you are the
100% owner of your investments, then she gets a basis change on it all.The rule is different in community property states. If you and a spouse own community property and one spouse dies and the other inherits, the basis gets changed on 100% of the value of the property, not just the deceased spouse's share.
That community property sounds good, but I guess NYS got me again.
Does the brokerage do this automatically or does someone have to instruct them to update the basis.
Nearly everything was bought in 2009, so the unrealized gains are pretty significant. It is really painful to have to sell something when I need money.
I live in NY and have most of our accounts titled as 50/50 tenants in common rather than joint tenants, on the belief that when one of us dies, the other gets the stepped up basis on the decedent's half. Is that right?
You get the stepped up basis on the deceased spouse's share whether the account is joint tenants or tenants in common.
The difference between joint tenancy and tenants in common is not the step-up upon the death of one of the co-owners. It is (1) that JT requires equal ownership where TIC allows unequal ownership and (2) each TIC can transfer their share to a beneficiary other than the other TIC upon death whereas ownership automatically passes to the other JT upon the death of one.
Ira Smilovitz, EA
Almost. Joint tenancy between spouses is treated as equal ownership for tax purposes. But ownership is not actually equal, and not treated as equal in other contexts. Joint tenancy ownership is normally based on age and actuarial calculations.
Not that it makes a difference in OP's case, though.
When my mom was dying, for simplicity I had my parents take their joint taxable account and create two new accounts each containing 50% of the assets. The broker then automatically stepped up the basis on death.
This might be even more advantageous in your case because you could simply have the account of the deceased spouse retitled in the name of the survivor and then sell those assets with much lower capital gains tax.
Depending on your income, you might want to sell assets now. If your combined income is under about $95K the tax rate on capital gains is zero. However, the context of your post hints that's not the case, and it can still get very complicated with social security income, etc.
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