How to handle cost basis and losses on inherited mutual funds?

Thanks for the info. Does this same rule apply to stocks too or just mutual funds? And what about if I inherited property instead of investments?

This same rule applies to virtually all inherited assets including stocks, bonds, real estate, and other property. The stepped-up basis rule works the same way for all these assets - the new basis becomes the fair market value on the date of death. For real estate specifically, you would typically need to get an appraisal to establish the fair market value as of the date of death if you plan to sell it later. The stepped-up basis rule is actually beneficial in many cases because it can eliminate capital gains taxes on appreciation that occurred during the decedent's lifetime.

Did they just tell you what the law says or did they actually help with calculating the specific values? My mom passed and left me a messy investment portfolio with stuff dating back to the 80s and I'm completely lost.

I'm skeptical about these online tax services. How do you know they're giving you the right information? Did they have actual tax professionals reviewing your situation?

They actually helped calculate the specific values based on the documentation I provided. They have a system that can extract the relevant information from statements and then apply the tax rules to determine the proper basis. This was super helpful because I had some complicated assets with reinvested dividends and splits that would have been a nightmare to figure out manually. Yes, they have tax professionals who review everything. What impressed me was they explained exactly which tax regulations applied to my situation and provided documentation I could keep with my tax records in case of an audit. They even highlighted which specific IRS publications supported their calculations, which gave me a lot of confidence in their advice.

Wait, how does this service work? Does it just call the IRS for you or what? I've been trying to reach them about an audit notice for weeks.

Sounds too good to be true. The IRS phone system is notoriously impossible. I find it hard to believe some service can magically get you through when millions of people can't get through every tax season.

It doesn't call the IRS for you - it uses a system that navigates the IRS phone tree and holds your place in line. When it's about to connect to an agent, it calls you and connects you directly to the agent. So you don't have to wait on hold for hours - you just get a call when an agent is actually available. I was skeptical too! I'd already spent three different days trying to get through on my own with no luck. The service basically monitors the IRS phone system and knows the best times to call and which menu options to select to minimize wait time. It's not magic - it's just a more efficient approach than what most people do (calling during peak hours and waiting on hold endlessly).

Thank you for bringing this up! I just checked my 1099-B from the brokerage and you're right - they're showing the original purchase dates and cost basis from when my husband bought them, not the stepped-up date of death values. Should I contact them to get this corrected before I file, or do I just report the correct information on my tax return regardless of what's on the 1099-B?

Definitely contact the brokerage right away to see if they can issue a corrected 1099-B. It's much easier to handle it now than dealing with IRS notices later. Most brokerages have a specific process for handling inherited assets and will update their records once you provide documentation (typically the death certificate and evidence you're the rightful inheritor). If they can't issue a corrected form in time for filing, you should still use the correct stepped-up basis on your tax return. Just be prepared to explain the discrepancy if the IRS questions it. Keep documentation showing the valuation on the date of death, as well as records showing you inherited the assets. You'll enter the stepped-up basis on your Schedule D even if it differs from the 1099-B.

Is there a limit to how many years you can carry forward losses? What if you never have enough gains to offset them all?

There's no time limit on carrying forward capital losses - you can carry them forward indefinitely until they're used up. Each year you can deduct up to $3,000 against ordinary income, and any remaining losses carry forward to the next year. You don't need capital gains to use the losses either. Even if you never have capital gains, you can still use $3,000 per year against your regular income (wages, interest, etc.) until all the losses are exhausted. So in the example of $10,000 in losses, if you never had any capital gains, you'd deduct $3,000 per year for about 3-4 years until they're all used up. The key is to keep good records of your carryforward losses from year to year, especially if you're doing your own taxes. Tax software usually tracks this automatically, but it's good to have your own records as backup.