Fiduciary Return

[Christian]

An elderly client of mine passed on in January of this year. Among her assets were shares of stock in two listed corporations. Rather than distribute the shares to the heirs of the estate the executor sold the shares and will distribute the cash. The estate will not have enough income to require the filing of a fiduciary return UNLESS the sale of these shares at a profit is considered a capital gain. My question here is which costs basis applies to the shares. We have no costs record for the original purchases of the shares which would give a basis of zero (the client was 93 and the records are nonexistent) or do we use the basis of the stock on the date of death? Alternatively does the sale even need to be reported as the heirs inherited the shares at the value on the date of death. This is one of those beauties I have never seen so any info will be appreciated.

[SaraEA]

The stock receives stepped up basis.  Calculate the mean of the high and low sales prices on the date of death for basis. (If the client died on a weekend, see my earlier posts on how to calculate basis.)  If the sales proceeds are more than $600, a 1041 is required, even if the net gain is less than that.

This can be a benefit to the beneficiaries because you get to deduct probate fees, attorney fees, and accounting fees (even if not paid yet!)  If these deductions are more than the capital gain, the excess is passed to the beneficiaries in the final year of the estate.  They can deduct these on Sch A without the 2% haircut.

[jklcpa]

I agree with Sara. Reference for the step up is IRC 1014(b )(1).  

https://www.law.cornell.edu/uscode/text/26/1014