Key Takeaways
- When a spouse dies, the survivor keeps the cost of their own half of jointly owned shares and takes the late spouse’s half at its value on the day of death.
- A married couple who bought shares jointly for $200,000 that are worth $150,000 when one spouse dies can deduct only $25,000 of their $50,000 loss.
- Selling while both spouses are alive locks in the whole $50,000 loss, which offsets capital gains without limit and other income at up to $3,000 a year.
- After chip stocks’ worst day since March 2020, couples with a seriously ill spouse and joint shares under cost should think about when they sell.
If you and your spouse own stocks jointly, you may know one of the nicer quirks of the tax code. When one of you dies, the late spouse’s half of a winning position gets a fresh cost, set at its value that day. But the IRS resets that cost when the shares are down, too, and then half your loss disappears for good.
That’s a bigger deal than usual right now. On Nov. 5, the S&P 500 fell more than 4%, chip stocks had their worst day since March 2020, and the Nasdaq closed in a correction. I suspect plenty of couples who bought into the AI run are holding joint positions below what they paid, and some of them have a spouse who’s seriously ill.
A $50,000 loss, cut in half
Let’s say, hypothetically, you and your spouse bought shares in a joint account for $200,000. After the sell-off, they’re worth $150,000, so the two of you are sitting on a $50,000 loss. Sell them today, and the whole $50,000 counts as a capital loss on your joint return.
But if your spouse dies while the shares are still at $150,000 and you sell after that, only $25,000 of the loss is deductible. Nobody can ever deduct the other $25,000.
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The IRS splits jointly owned shares down the middle
When a spouse dies, half of what the couple owned jointly counts as the late spouse’s, and half its value goes into their estate. You keep the original cost of your own half, and you take the inherited half at what it was worth on the day of death. That covers spouses who owned the property jointly with right of survivorship or as tenants by the entirety. So when the shares are down, you inherit your spouse’s half at a lower cost than the two of you paid for it.
Your new cost is $175,000
Say the shares are at $150,000 on the day your spouse dies. Here’s how you’d work out your new cost:
- Your own half keeps its cost: $200,000 ÷ 2 = $100,000
- Your spouse’s half resets to its value at death: $150,000 ÷ 2 = $75,000
- Your cost for all the shares: $100,000 + $75,000 = $175,000
Sell at $150,000, and your loss is $25,000. Your spouse’s half lost the other $25,000 while they were alive ($100,000 of cost against $75,000 of value), and the reset to $75,000 erased it. Since nobody sold those shares before your spouse died, that loss can’t go on their final return either.
Sell first, and you keep the whole $50,000
Sell while you’re both alive, and the full $50,000 loss goes on your joint return. Capital losses offset capital gains dollar for dollar with no limit. So if you have winners elsewhere, you could take up to $50,000 of gains on them in the same year and owe no tax on those gains. Whatever loss is left after that comes off your other income at up to $3,000 a year ($1,500 if you’re married filing separately), and the rest carries over to later years.
But a loss that’s still unused when a taxpayer dies can go only on their final return, within the $3,000 limit, and the estate can’t carry over the rest. With no gains to offset, $50,000 at $3,000 a year would take 17 years to deduct in full.
Worth a hard conversation
None of this is easy to think about when your spouse is seriously ill, and selling shares because of a diagnosis can feel ghoulish. But a $25,000 deduction is a lot to give up to dodge an uncomfortable conversation. Frankly, if a joint position is well under cost and one of you is sick, I’d sell it while you’re both alive and pair it with some winners.
The shares could always bounce back first, of course. Above $200,000, there’s no loss to lose, and you’d inherit your spouse’s half at its higher value. No tax would ever be owed on the gain that half built up.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
