Mom passed, her and my tax liabilities, capital gains, basis

What is the name of your state? Mom's: Texas, mine: Austria
Mom passed away without a will last month. Her estate was less than $2M ($650K). We had a securities account in joint ownership with rights of survivorship. I have sent a death certificate to the securities company, I assume her name will be removed. The account was funded 100% by her, securities in it (my choice, silver miners) have large, unrealized capital gains. When I do her taxes, are these gains taxed? When I sell securities, possibly next year, is my basis the FMV on the day she passed, or when the securities were purchased? Is there tax software that better addresses this situation than Turbotax? Thanks!

This is a question for the tax law message board, or better yet, consult with a local CPA or tax accountant who has experience working with estates. You will also need to consult with a probate attorney in the same city/county where she died so you can determine if she has any assets not in the will that need to be officially probated without the will. That attorney may be able to suggest a tax professional to assist you.

DANDY DON IN OKLAHOMA ([email protected])

I would strongly recommend that you hire a tax professional for this one. If you can't find one you are comfortable with in Austria, you can hire one that is located in the US, and work by phone and fax. You will however, get a stepped up basis on your mother's half of any assets you owned jointly.

When property is held JTROS by a non-married couple, the entire value of the asset is included in the estate of the first to die, & the survivor receives a full step up in basis, unless the decedent's estate can prove that the survivor provided consideration for his/her share of the asset. Since mom funded the entire account, you receive a full step up in basis.

Please consult an Austrian tax expert for info on how Austria calculates your basis in the account. Unless there is a tax treaty saying that Austria agrees to be bound by US laws in such a situation, Austrian law will be applied on any Austrian tax reutrns.

Thanks, Abezon. What does "a full step-up in basis" mean? Besides filing Austrian taxes, I also file with the IRS for earnings in the US.

alterfurz said:

Thanks, Abezon. What does "a full step-up in basis" mean? Besides filing Austrian taxes, I also file with the IRS for earnings in the US.

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That means that the basis in the asset is the value as of the day that your mother passed away, rather than the original cost of the asset.

Thanks, LidJ. I'm surprised that the appreciation of the securities until the date of Mom's death will not be taxed. That's about $250K. I was prepared for a basis of the initial purchase price of the securities on the basis of this example I read:

"Property Held by Surviving Tenant

The following example explains the rule for the basis of property held by
a surviving tenant in joint tenancy or tenancy by the entirety.

Example. John and Jim owned, as joint tenants with right of survivorship,
business property they purchased for $30,000. John furnished two-thirds of
the purchase price and Jim furnished one-third. Depreciation deductions
allowed before John's death were $12,000. Under local law, each had a half
interest in the income from the property. At the date of John's death, the
property had an FMV of $60,000, two-thirds of which is includable in
John's estate. Jim figures his basis in the property at the date of John's
death as follows:

Interest Jim bought with his own funds-- of $30,000 cost $10,000
Interest Jim received on John's death-- of $60,000 FMV 40,000 $50,000
Minus: of $12,000 depreciation before John's death 6,000
Jim's basis at the date of John's death $44,000

If Jim had not contributed any part of the purchase price, his basis at
the date of John's death would be $54,000. This is figured by subtracting
from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half
interest before the date of death. If under local law Jim had no interest
in the income from the property and he contributed no part of the purchase
price, his basis at John's death would be $60,000, the FMV of the
property."

alterfurz said:

Thanks, LidJ. I'm surprised that the appreciation of the securities until the date of Mom's death will not be taxed. That's about $250K. I was prepared for a basis of the initial purchase price of the securities on the basis of this example I read:

"Property Held by Surviving Tenant

The following example explains the rule for the basis of property held by
a surviving tenant in joint tenancy or tenancy by the entirety.

Example. John and Jim owned, as joint tenants with right of survivorship,
business property they purchased for $30,000. John furnished two-thirds of
the purchase price and Jim furnished one-third. Depreciation deductions
allowed before John's death were $12,000. Under local law, each had a half
interest in the income from the property. At the date of John's death, the
property had an FMV of $60,000, two-thirds of which is includable in
John's estate. Jim figures his basis in the property at the date of John's
death as follows:

Interest Jim bought with his own funds-- of $30,000 cost $10,000
Interest Jim received on John's death-- of $60,000 FMV 40,000 $50,000
Minus: of $12,000 depreciation before John's death 6,000
Jim's basis at the date of John's death $44,000

If Jim had not contributed any part of the purchase price, his basis at
the date of John's death would be $54,000. This is figured by subtracting
from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half
interest before the date of death. If under local law Jim had no interest
in the income from the property and he contributed no part of the purchase
price, his basis at John's death would be $60,000, the FMV of the
property."

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The bolded portion tends to back up Abezon's opinion that you would get a full stepped up basis.

In layman's terms, it states that if you did not provide any money for the original investment, and your mother reported the full yearly interest/dividend/capital gain income on her tax returns, then your basis in the asset is the fair market value as of the date she passed away.

Depreciation is not an issue for this particular asset, so that part need to be ignored.

A big thanks to both of you, abezon and LdiJ. No capital gains will be realized this year, so it looks like the $250k paper profit up until my Mom's passing will be untaxed. I'll be curious to see what the securities company sends me at the end of the year for the TOD account. Again, I'm grateful for your explainations.