My parents have been married for 60 years. Unfortunately, the doctors say they won't have a 61st anniversary.
Assume they hold 500 shares of XYZ in a joint account with a cost basis of $10 and a market value of $50. What is the tax treatment when Mom dies? Is Dad's cost basis now $30? Can he sell half the stock and claim a cost basis of $50 on it?
It depends - do they live in a community property state?
In a non-community property state, when one dies one half the value normally gets a stepped up basis to value at the date of death. In a community property state the entire value gets a stepped up basis.
Of course when the second spouse dies, everything that is left will get a full stepped up basis at that time.
If they do not live in a community property state, no, he can't do that. Half the value of each share gets stepped up, so all 500 shares have a basis of $30 per share.
If they do live in a community property state, yes. In fact, he can sell all the stock and claim a basis of $50 per share, because all the shares get the stepped-up basis.
Community property states are AZ, CA, ID, LA, NM, NV, TX, WA, and WI.
Bob Sandler
There are 9 CP states. They do not all have the same CP laws. E.g., in AZ if the married couple use JTWROS instead of community property, AZ treats that as each spouse owning half the property as their separate property. I believe the IRS defers to state law on this issue. So, in AZ there would only be a step-up in value for 50% of the property. One would need to check all 9 states to see how JTWROS property is handled. E.g., WA says that JTWROS remains community property.
That's a good point. Thanks, Alan.
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