Yes. If you have a legal claim to the decedent’s assets as part of a trust, inherited mutual fund losses can help to lower your taxes.
However, inherited mutual funds need to be appraised before you can take advantage of the damage.
Inheritance Recovery Lawyers can walk you through the process to help understand how the funds are valued and the legal aspects of ownership liability.
Sometimes, the funds need to remain in the trust until probate is complete. Depending on the estate, the process can take months or years delaying the distribution of the fund shares.
Cost Basis Versus Step-Up Basis
Cost basis is the previous owner’s purchased price value of the share. Investment and tax-wise, the gain or loss of an asset like mutual funds is determined by calculating the difference between the cost basis and the current market value price.
When you inherit the funds, the cost basis changes. Instead of using your decedent’s purchased price, your cost basis is now termed as the step up basis.
The share’s step-up basis is established on the date of death. If the shares currently have a lower market value from the step up basis price, the difference is the loss amount that can be written off on taxes.
The Internal Revenue Service (IRS) has valuation date provisions for inherited funds held in a trust. For you to claim any loss, the faith needs to pass the shares to you.
The IRS 550 Publication contains information for individual shareholders of mutual fund distributions. The tax provision allows you to use this lost value to offset the federal taxes of other investment gains or taxable income. Most beneficiaries don’t realize, the tax basis for inherited mutual funds is the date of the decedent’s death.
You may be limited to losses of $3,000 each year. If the injuries are more significant than $3,000, you can carry the excess over to the following years until you have taken the entire loss.
Mutual Fund Investments
Some funds are short-term (less than one year), while others are long-term (longer than one year) investments. A different tax table governs each.
In this case, the IRS deems inherited mutual funds as a long-term investment.
You want to know the proportions of mutual equities, bonds, and other securities. Generally, portfolio managers invest in bonds and other securities like retirement funds.
Individuals also invest in businesses, exchanging cash for shares called equities known as common stock of publicly traded companies.
Beneficiaries inheriting mutual fund shares are free to do as they wish with these assets. The trust pays all expenses typically before the descendant’s death, but you are liable if you choose to sell fund shares after you received your inheritance.