Irs Publication 564 - Mutual Fund Distributions

Shares Acquired by

your spouse gave the decedent within the

undistributed capital gain you include in income

and the tax considered paid by you on that

1-year period ending on the date of the

Inheritance

income.

decedent’s death if, on the date of the gift, the

The mutual fund reports the amount of your

shares were appreciated property. In this situ-

If you inherited shares in a mutual fund, your

undistributed capital gain in box 1a of Form

ation, the basis of the inherited shares is the

original basis is generally the fair market value

2439. You should keep Copy C of all Forms

decedent’s adjusted basis in them immediately

(FMV) (the last quoted public redemption price)

2439 to show increases in the basis of your

on the date of the decedent’s death, or the

before his or her death, rather than their FMV.

shares.

alternate valuation date if chosen for estate tax

This basis rule also applies if the decedent’s

purposes.

Reduction of basis. You must reduce your

estate (or a trust of which the decedent was the

basis in your shares by any return of capital

grantor) sells the shares instead of distributing

Community property states.

In community

distributions that you receive from the fund.

them to you, and you are entitled to the pro-

property states, you and your spouse generally

The mutual fund reports the amount of any

ceeds.

are considered to each own half the estate (ex-

return of capital distributions in box 3 of Form

cluding separate property). If one spouse dies

Appreciated property. Appreciated prop-

1099 – DIV. You should keep the form to show

and at least half of the community interest is

erty is any property (including mutual fund

the decrease in the basis of your shares.

includible in the decedent’s gross estate

shares) whose FMV is more than its adjusted

No reduction of basis.

You do not reduce

(whether or not the estate is required to file a

basis.

your basis for distributions from the fund that are

return), the FMV of the community property at

Exceptions. This basis rule does not apply

exempt-interest dividends.

the date of death becomes the basis of both

if the decedent died before 1982 or you gave the

halves of the property.

Table 2. This is a worksheet you can

shares to the decedent before August 14, 1981.

For example, if the FMV of the entire commu-

use to keep track of the adjusted basis

nity interest in a mutual fund is $100,000, the

of your mutual fund shares. Enter the

RECORDS

Adjusted Basis

basis of the surviving spouse’s half of the shares

cost per share when you acquire new shares

is $50,000. The basis of the heirs’ half of the

and any adjustments to their basis when the

After you acquire mutual fund shares, you may

shares also is $50,000.

adjustment occurs. This worksheet will help you

need to make adjustments to your basis. The

In determining the basis of assets acquired

figure the adjusted basis when you sell or re-

adjusted basis of your shares is your original

from a decedent, property held in joint tenancy is

deem shares.

basis (defined earlier), increased or reduced as

community property if its status was community

described here.

property under state law.

Addition to basis. Increase the basis in your

Shares you gave the decedent. A different

basis rule applies to inherited shares that you or

shares by the difference between the amount of

Table 2. Mutual Fund Record

Acquired

Sold or redeemed

Adjusted

Number

Cost

Number

Mutual Fund

Adjustment to Basis Per Share

Basis Per

Date

Per

Date

Include share received from reinvestment of distributions.

Cost plus or minus adjustments.

Page 6

Irs Publication 564 - Mutual Fund Distributions - 2003 Page 6

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