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  • Stepped-Up Basis

    From paultry@21:1/5 to All on Sun Apr 17 20:23:26 2022
    A family member is inheriting a mutual fund from her father,
    who died in January. The father's account is managed by,
    let's say, XYZ Investments. The account is invested 100% in
    a bond fund which has done well for the past several years,
    but has lost 8% of its value since the father's death. With
    rising interest rates and other market factors, the bond
    fund stands to lose even more value.

    1) Does the stepped-up basis belong to the account or the
    fund? Can the daughter redirect money in the account to
    other funds managed by XYZ Investments, and retain the
    stepped-up basis?

    2) If the daughter moves money out of the XYZ account and
    its bond fund, segregates it in a CD, and reinvests future
    interest earnings in the CD, would the stepped-up basis
    follow the money and exclude tax on the interest and
    increased value of the CD, up to the basis amount? Or is
    the stepped-up basis lost when the money is moved.

    Thanks

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  • From John Levine@21:1/5 to All on Mon Apr 18 00:05:14 2022
    According to paultry <[email protected]>:
    1) Does the stepped-up basis belong to the account or the
    fund? Can the daughter redirect money in the account to
    other funds managed by XYZ Investments, and retain the
    stepped-up basis?

    In a few cases you can make a tax free switch among share classes in
    the same fund, but in general if she sells the fund, that's when she
    has a gain or loss.

    2) If the daughter moves money out of the XYZ account and
    its bond fund, segregates it in a CD, and reinvests future
    interest earnings in the CD, would the stepped-up basis
    follow the money and exclude tax on the interest and
    increased value of the CD, up to the basis amount? Or is
    the stepped-up basis lost when the money is moved.

    I believe she has a tax loss when she sells the fund. It doesn't
    matter what she does with the money.

    --
    Regards,
    John Levine, [email protected], Primary Perpetrator of "The Internet for Dummies",
    Please consider the environment before reading this e-mail. https://jl.ly

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>

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  • From Bob Sandler@21:1/5 to All on Mon Apr 18 11:04:12 2022
    A family member is inheriting a mutual fund from her father,
    who died in January. The father's account is managed by,
    let's say, XYZ Investments. The account is invested 100% in
    a bond fund [snip].

    1) Does the stepped-up basis belong to the account or the
    fund? Can the daughter redirect money in the account to
    other funds managed by XYZ Investments, and retain the
    stepped-up basis?

    2) If the daughter moves money out of the XYZ account and
    its bond fund, segregates it in a CD, and reinvests future
    interest earnings in the CD, would the stepped-up basis
    follow the money and exclude tax on the interest and
    increased value of the CD, up to the basis amount? Or is
    the stepped-up basis lost when the money is moved.

    John Levine is right. The stepped-up basis is for the
    specific shares of the bond fund that she inherited. If she
    "redirects" it or "moves" it, she has sold the bond fund.
    She uses the stepped-up basis when she reports that sale on
    her tax return. After that first transaction, the stepped-up
    basis is gone. It can't be "retained" and it doesn't
    "follow" anything. But the stepped-up basis is not lost.
    It's used on the initial sale of the bond fund.

    Bob Sandler

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>

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  • From John Levine@21:1/5 to All on Mon Apr 18 13:23:21 2022
    According to John Levine <[email protected]>:
    I believe she has a tax loss when she sells the fund. It doesn't
    matter what she does with the money.

    Following up, if she sells the fund at a loss, she can net out the
    loss against any capital gains the realizes in the same tax year. Or
    if the loss exceeds her gains, she can apply up to $3000 of excess
    loss against other income and carry any amount beyond that forward to
    future tax years.

    IRS tax topic 409 has more info:

    https://www.irs.gov/taxtopics/tc409

    --
    Regards,
    John Levine, [email protected], Primary Perpetrator of "The Internet for Dummies",
    Please consider the environment before reading this e-mail. https://jl.ly

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>

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