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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am an 84 year old widow, I cashed in a total of $61,005.

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I am an 84 year old widow, I cashed in a total of $61,005. in shares, and bonds over the last year, to help my son with his medical and general living expenses. My son has been ill and unemployed for a year and a half. All of the funds have been given to, and used by him for whatever he needed. I received multiple form 1099-B's for these transactions. These are funds my late husband left me upon his passing 4 years ago and transfered free and clear after his death. According to my limited income, and an attempt to file with turbo tax, I am facing an enormous adjusted income, and a pending tax bill for Federal and State of over $12,000. Is this at all correct.? I cannot believe that 1/6 of funds I had are taxed as "new income", we have paid taxes on all capital gains over the years in the form of 1099-div. Is there something I can do to alleviate this ?

Hello rush,


Unfortunately any time that you sell stocks and bonds, you are liable for paying capital gains tax on any gain you have from the sale of those assets. Over the years that you owned those stocks, it is true that you paid taxes on the dividends that you received as the dividends were paid. But the dividends are totally separate income from the gain you have when these stocks and bonds are sold.


However, what I am not clear on is how much tax you actually owe here. Your gain from the sale of these stocks and bonds is all that would be taxable. If you received a total of $61,005 when you cashed in these assets, then you would have to deduct from that amount your basis in these stocks.


Since you inherited these stocks 4 years ago from your late husband, your basis in these stocks and bonds would be whatever the fair market value was at the time he passed away. So let me just give you a simplified example here.


Let's say that you just sold 100 shares of ABC Company for $1,000. And let's say that you inherited those shares from your husband 4 years ago, and at the time he passed away the shares had a market value of $700. The $700 would be your basis in the stock and you would deduct that from the $1,000 you received when the shares were sold. That would give you a gain of $300 and you would pay capital gains tax on the $300 only.


It is possible you do not report the sale properly to the IRS to show your basis in these stocks and the IRS may be charging you tax on the entire amount you received of $61,005 which is not correct. You should have reported the sale of these stocks and bonds on Schedule D of your tax return and on that schedule you would show the sales price of the stock, less your basis, and then your taxable gain or loss.


If you did not report the sales in this manner, you need to file an amended return and follow those procedures, as this will bring your tax bill down tremendously.


If this was helpful please press the Accept button. Positive feedback is also appreciated.


Thank you rush



Merlo and 2 other Tax Specialists are ready to help you
Customer: replied 7 years ago.

When I state "inherited", I hope that I am stating transfer correctly. My name has been in Joint trust w/ right of survivorship on all the accounts. Would I still use the cost basis from that date of transfer when Charles died?,

Thank you

I am Mary, Rush's mother.

I need to know what state you and your husband lived in when he died. There are different rules for determining your basis on joint accounts if you lived in a community property state.



Hello again Mary,


Since I have not heard back from you with the state information, I am going to assume that you lived in West Virgnia at the time of your husband's death. If that is not correct, let me know.


West VA is not a community property state. So if the stocks and bonds were held in both of your names, you would only receive half of the stepped up basis on those assets. Here is an example of how it would work.


Let's say that you and your husband originally bought 100 shares of ABC Company for $1,000. That would have given each of you a starting basis in the shares of $500.


Now when your husband died let's say those same shares were worth a total of $3,000. Your new basis would be figured as follows:


Take your own starting basis of $500 from the original purchase

Take the fair market value of the stock when your husband died, and add half of that total to your starting basis (you receive the stepped up value on his half only)


You now have a new basis of $2,000. If you now sell the stock for $3,000 you have a taxable gain of $1,000.


If this was helpful please press the Accept button.


Thanks Mary



Merlo and 2 other Tax Specialists are ready to help you
Customer: replied 7 years ago.

Oh my, this is very confusing. I do understand what you are telling me for the most part. However, would the fact that when he passed, we resided in Maryland, make a difference?

And,does the taxable gain situation remain the same as you described?

His tax accountant did the paperwork for the transfer, but he is too far away to use, and too hard to reach.

Thank you, XXXXX XXXXX sorry this became more confusing.

I appreciate your advice thus far, and I am following it fairly well.