Cost basis for an inherited investment account

February 28, 2023 5:45 AM

My father passed away last year, and I inherited half of his investment account. I withdrew a portion of this account after the transfer. I recently received the tax form from the account, and the cost basis shown on the tax form appears to be the cost basis from when he invested in the account.

Based on other research, I think that the cost basis should have be reset to his date of death.

When I file my taxes, will this be a problem? Can I put a different cost basis on my return than what is shown on the tax form?

The withdrawal was only about a month after I got the account, and based on my calculations, there should have been a net loss on the sale.

posted by dforemsky to Work & Money (6 answers total)

The investment account had to be stepped up to his date of death to change the cost basis. I don't know that you can have that done retroactively but definitely contact the financial institution.
posted by leslies at 5:57 AM on February 28, 2023

Sorry for your loss.

You need to define how the assets were inherited here. Were you always a co-owner of the account (sometimes listed as "joint ownership with transfer on death"), or was the account fully under your father's control and then completely passed to you when the estate was settled?
posted by JoeZydeco at 5:59 AM on February 28, 2023 [1 favorite]

Yeah, you're right that the cost basis should have been stepped up to the date of your dad's passing. Most investment companies can retroactively correct this by either submitting a form or just a letter of instruction asking them to, and submitting proof of death. Call your advisor (if you have one) or the brokerage company to find out exactly what's needed. It typically doesn't take them very long to do so, but it may be worth asking a CPA how best to handle, since we're in the midst of tax time. If you weren't a co-owner on the account prior to your dad's passing, you should get a full step-up, but even if you were co-owner, you should still be able to get a half step up.
posted by csox at 6:01 AM on February 28, 2023 [2 favorites]

Best answer: Yes, you can just adjust the cost basis on your own taxes and include the explanation. See column e on this page: Form 8949.
posted by soelo at 6:23 AM on February 28, 2023 [4 favorites]

Also, depends on what type of account this was. For instance, an IRA doesn't get a stepped up basis.
posted by Doktor at 12:02 PM on February 28, 2023

Response by poster: To answer a couple of questions here, I was not a co-owner, but the account was Transfer on Death to my sister and myself. The account is/was a non-IRA brokerage account. (he also had an IRA account as well as a Roth IRA account. We got all flavors.)

Form 8949 was exactly what I was looking for. Thanks to all.
posted by dforemsky at 6:10 AM on March 1, 2023 [1 favorite]