Some Basics on Cost Basis
This week we've got a couple of questions on determining cost basis, a mortgage interest deduction quandary and a bond (eck!) question. We'll also clear up some confusion over options reporting.
Please send any other questions to
All About Cost Basis
What cost basis or stepped-up basis would exist if some stock is in the name of a spouse who dies? Does the other spouse get stepped-up basis? What if the stock is in a joint account with a spouse who dies?
If a spouse dies and the other gets the stock at stepped-up basis and then adds an adult child as joint owner, what basis would the child use when the parent dies?Finally, if stock is owned by spouse 1 and spouse 2 dies, does the basis remain the original cost for spouse 1? -- Ron Dunn Ron, If the stock is in your wife's name and she dies, assuming the shares are left to you, you'll get the step-up in basis. That means when you sell the shares, your basis will be the fair market value on the day you inherited them, not your wife's original cost. If you jointly own stock that was contributed to the account after 1977, when one of you dies, only half the account gets the step-up in basis, regardless of how much you each contributed, says Martin Nissenbaum, national director of personal income-tax planning at Ernst & Young. For amounts contributed before 1977, you can get the step-up in basis on the entire amount your wife contributed (providing you can document her contributions). If you live in one of nine "community property" states (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas or Washington), the rules are a bit different. If you have a joint account here, you'd get a step-up in basis for the entire amount, regardless of who contributed what. Be sure to check with a local expert, though. Adding a child to the account after one spouse dies does not change the basis, says Rande Spiegelman, personal financial services manager at KPMG in San Francisco. (Just be aware you might have
Bond BasisWhat is the tax basis of a bond? Is it the purchase price or the purchase price and accrued interest? -- Earle McCants Earle, If you buy a bond, your basis is your purchase price. Accrued interest is not included. Here's why: Most bonds pay interest every six months. If you buy a bond in the middle of that six-month period, it will have started to accrue interest. So you will owe its face value plus interest to the bond owner. Even so, that interest is not part of your purchase price. For tax purposes, it's "negative interest." Let's say you bought a bond that had two months worth of accrued interest. You'd pay the owner for those two months and show it as negative interest on your
Can My Kid Deduct Mortgage Interest?If my son pays the mortgage on a home I own and he is living in it, can he deduct the mortgage interest on his taxes even though he is not a borrower on the mortgage? -- Ed Hunssinger Ed, He can't "unless you put him on the deed of the house," Spiegelman says. But it doesn't matter what percentage of the house is in his name. Even the smallest amount will let him get a full deduction for the mortgage interest he paid.
Using a 401(k) as CollateralI know I can borrow from my 401(k) plan. Can I borrow against my 401(k) plan, pledging assets in the plan as collateral for the loan? If not, is this specifically disallowed, or just a technique that hasn't been developed? -- David Yeidel David, You can't use your 401(k) assets as collateral for anything, says Dee Lee, a certified financial planner and co-author of
Lump Sum or Individual Trades?In your Oct. 9
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV