Deceased owner on joint mutual fund account with no 1099 form

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  • #77421
    bws92082x
    Participant

    How do I account for the taxes during the transition from a joint (JTWROS) to a single (survivor) mutual fund account? The details are as follows:

    I was secondary on my mother’s Vanguard mutual fund account where each tax year she always paid 100% of the taxes (which amounted to no tax at all since she had little income–I did her taxes for her). She died in Oct 2021, and Vanguard closed the account in November then transferred the funds to a new account in my name only. She had no left-over assets and there will be no probate on her estate.

    I called Vanguard and they said they would NOT be providing a 1099 for my mother’s account, so it would be up to me to calculate the taxable amounts. It was mostly a money market fund with interest only ($9 in all) but in the last month, there was a purchase of a bond fund. There were no dividends posted but there would have been a small capital loss at the time of account closure and transfer (less than $100).

    I just want to handle this the easiest, most SIMPLE way and with the least probability of triggering complications or an audit. Since the tax amount involved is minuscule, hiring a tax accountant is out of the question. So….

    1) Should I just take primary ownership of the joint account for the full tax year and pay all the taxes on it myself (which would be a small loss)?

    2) Or do I need to calculate my mother’s mutual fund gains and losses as of the exact date of her death? If so, then in the 30 days that followed before the account was closed, who gets taxed on the activity during this interval–me or does it go on my mother’s return?

    3) Perhaps I am overlooking some other option. I’m open to suggestions.

    To summarize, I need a cheap and simple way to handle this situation without risking delays or an audit.

    • This topic was modified 8 months ago by bws92082x.
    • This topic was modified 8 months ago by bws92082x.
    • This topic was modified 8 months ago by bws92082x.
    #77425
    Kaye Thomas
    Moderator

    Reporting rules require Vanguard to issue Form 1099 if the income produced by the account is $10 or more. Their statement that they will not produce a 1099 fits with your statement that the amount of income is just $9.

    Strictly speaking, IRS requires any smaller amount to be reported by the taxpayer even though the investment firm did not produce a Form 1099. As a practical matter, the IRS never checks up on this, as the cost of doing so would be far greater than the additional tax they might collect. The simplest thing to do is simply ignore this income.

    If you want to be entirely proper, you can do an allocation. The account became yours at your mother’s death in October. Rounding to the nearest dollar (as IRS prefers), you would allocate $7 to your mother’s final return (if any) and show $2 on your own return. You would be doing this only to satisfy your own desire to be in precise compliance with IRS rules, even as to an item that would not conceivably be of interest to them.

    You cannot claim a capital loss on the decline in value of the bond fund prior to its transfer to you, nor would it appear as a loss on your mother’s final return if one is being filed. A capital loss requires a sale or exchange. Death of the owner is not treated as a sale or exchange.

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