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Husband and wife submitted a joint tax return. However

This question is for Lev...
This question is for Lev. Husband and wife submitted a joint tax return. However husband in a year prior to his death opened an art business with him as a painter. Thus, he attached schedule C to the joint return for his new business. Only one person can be put down on schedule as an owner of the business. Thus, I presume the business was his -- and thus after his death all of his painting in this business received the stepped up basis? Next year he lived only for 2 months and the wife did not file the schedule C for him for this year or any of the following years. Even though the schedule C was not filed on the year of death - can the wife still use the stepped up basis for these paintings lost in the fire many years later? I guess my concern would a failure to file schedule C on wife's part would disqualify this as a legitamate business.
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Answered in 24 minutes by:
11/21/2017
Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 33,140
Experience: Personal Investment, Tax Preparation
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Thus, I presume the business was his -- and thus after his death all of his painting in this business received the stepped up basis?

While that might be correct - the fact of only one spouse participating in business has no direct relation to the ownership of business assets...

For instance - if they were divorced - absence of other conditions - the court would likely divide all assets equally as they were created during the marriage and martial funds were used for that business.

That is OK if the wife did not maritally participated in the business and that was only husband's schedule C.

But that doesn't mean the wife had NO ownership rights on business and business assets.

While - it is possible that spouses agreed to have these business and these assets owned by husband only.

Even though the schedule C was not filed on the year of death - can the wife still use the stepped up basis for these paintings lost in the fire many years later?

I do not think that makes any difference - because very likely - the husband had no any business activity during last period of his life and not filing schedule C has no relation to the ownership.

But it would be reasonable to presume that the husband actually owned assets he created - and these assets are included into HIS estate.

But again - generally - your arguments are not relevant for determination.

We need to concentrate on the fact of the ownership only.

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Customer reply replied 8 months ago
thank you. In this case there was an understanding that it was husband's business as he was the one painting the paintings, doing marketing, organizing exhibitions etc.
I guess what you are saying --- that it does not matter whether there was or was not any business activity in the two months of the year preceeding the husband's death and/or whether the schedule C was filed for these two months. As long as the business was not officially dissolved during these two months -- then the wife can still claim a stepped up basis on his paintings -- as long as there was an understanding that the business and its assets belong to the husband prior to his death.

You are correct - it was husband's business as he was the only one who materially participated.

But that is not directly related to ownership of business assets.

The ownership is based on state law and agreement between spouses.

Whether there was or was not any business activity during the last period of his life is not relevant.

There is no requirements to dissolve the business officially while that might be recommended.

Stepped up basis is based on the ownership and will ONLY apply to assets which were owned at the time of death and as such were included into decedent's estate (regardless if the estate tax return was actually filed and regardless if there were any estate tax due).

If assets were purchased using martial funds - it would be reasonable to assume they are owned jointly,

but if assets were created by one spouse only with relatively little cost involved - it would be reasonably to classify these assets as owned by that spouse.

Lev
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Category: Finance
Satisfied Customers: 33,140
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