investing

Selling Jointly Owned Stock After the Death of a Spouse

How you will be taxed depends on the state in which you reside.

Question: My wife has passed away, and I would like to sell some stock that we held jointly. How will the gains be taxed when I sell the shares?

Answer: If you and your wife owned the stock as joint tenants with right of survivorship, then you became the sole owner after she died. Contact the brokerage firm to find out what documentation you need to provide.

When you sell the shares, how you will be taxed depends on where you live. In most states, half of the investment’s tax basis was stepped up when your wife died. That means when you sell, the capital gains or losses on your half of the investment will be based on the stock’s value when you originally purchased it, but the basis of your wife’s share will be based on its value at the time of her death.

Roger Young, a senior financial planner at T. Rowe Price, provides a helpful example. Say you and your wife bought shares of stock for $20,000. The stock was worth $70,000 when she died, and you sold the shares for $80,000 some time later. You each started out with a basis of $10,000 (half of the original $20,000 investment). Because the stock was worth $70,000 when your wife died, the basis of her half got bumped up to $35,000. When you eventually sell all of the shares, the basis will be $45,000 (your original $10,000 and the stepped-up $35,000), and you’ll be taxed on a capital gain of $35,000 ($80,000 minus $45,000). Even if you sell the shares less than one year after she died, you’ll still pay long-term capital-gains taxes on the profit.

The calculations are different, however, if you live in a community-property state (Nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- are community-property states.) In that case, the entire investment would be stepped up to its value at the date of the first spouse’s death. If the shares were worth $70,000 when she died and you sold them for $80,000, you’d be taxed only on the $10,000 increase. See IRS Publication 555, Community Property, for more information about the tax rules in community-property states.

It helps to keep records of the value of the investment when you originally purchased it, as well as its value when the joint owner died. If you don’t have those records, your financial institution should be able to help you track down the information.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your second stimulus check.
January 18, 2021
Biden Calls for $1,400 Payments as Part of $1.9 Trillion Relief Package
Coronavirus and Your Money

Biden Calls for $1,400 Payments as Part of $1.9 Trillion Relief Package

Under Biden's plan for a third stimulus check, the $600 second-round stimulus checks would be increased to $2,000.
January 14, 2021
6 Reasons Why Your Second Stimulus Check Might Be Delayed
Coronavirus and Your Money

6 Reasons Why Your Second Stimulus Check Might Be Delayed

The IRS started delivering second-round payments in December. If you're still waiting for your money, here's why your second stimulus check could be l…
January 18, 2021

Recommended

6 Money-Smart Ways to Spend Your Second Stimulus Check
Coronavirus and Your Money

6 Money-Smart Ways to Spend Your Second Stimulus Check

If you don't have to use your second stimulus check for basic necessities, consider putting the money to work for you. You'll thank yourself later.
December 28, 2020
Getting Married or Moving In Together? Time to Talk About Money
Starting a Family

Getting Married or Moving In Together? Time to Talk About Money

Sharing a life means it’s time to talk finances.
December 22, 2020
11 Tax Breaks for the Middle Class
Tax Breaks

11 Tax Breaks for the Middle Class

Tax breaks aren't just for the rich. There are plenty of them that are only available to middle- and low-income Americans.
December 17, 2020
Is Pet Insurance Worth It?
Making Your Money Last

Is Pet Insurance Worth It?

If you’ve added a dog or cat to your family, consider pet insurance to manage routine and unexpected veterinary bills.
December 16, 2020