What’s the Basis of Joint Stock When a Co-Owner Dies? (w/Examples) + FAQs

This article reflects federal rules as of June 2026 and covers tax year 2025 (returns filed in 2026) and the 2026 filing season. State rules are addressed separately below. Tax law changes — confirm current figures with IRS.gov before you file.

Quick Answer

It depends on how you owned the stock. For tax year 2025, jointly owned stock gets a stepped-up basis to fair market value on the date of death — but only for the share included in the decedent’s estate. Spouses in common-law states step up 50%; community property gets a full 100% step-up under IRC §1014(b)(6).

Your basis is the number you subtract from a sale price to figure your taxable gain, so getting it right is the difference between owing thousands in capital gains tax and owing nothing. When a co-owner of stock dies, the law lets you reset all or part of that basis to the value on the date of death, which can erase decades of built-up gain in a single moment.

The stakes are real and the rules are easy to get wrong. The federal estate and gift tax exemption is a permanent $15 million per person for 2026 under the One Big Beautiful Bill Act, so almost no family owes estate tax — yet the income tax basis step-up still applies regardless of estate size, which is exactly why so many heirs overpay capital gains tax by using the wrong starting number.

Here is what you will learn:

• 🧮 How to calculate your new basis for spousal, non-spousal, community property, and tenancy-in-common stock.
• 💍 Why a surviving spouse in California can owe zero tax while the same couple in New York keeps a taxable gain.
• ⚖️ How the “consideration furnished” rule of IRC §2040(a) can step up far more than half for non-spouses.
• 📉 The traps that lower your basis and the one-year gift-back rule that wipes out the step-up entirely.
• 📝 Exactly how to report the eventual sale on Form 8949 and Schedule D, with the records to keep.

What “Basis” Means and Why Death Changes It

Basis is your tax cost in an asset. For stock you bought, basis is what you paid plus commissions, adjusted for things like reinvested dividends and stock splits. When you sell, your taxable gain is the sale price minus your basis, and that gain is taxed at long-term capital gains rates of 0%, 15%, or 20% for assets held more than a year in 2025.

Death changes basis because of IRC §1014. Under that section, property a person holds at death gets a new basis equal to its fair market value on the date of death. This is the “step-up” (or sometimes a “step-down”). The consequence is enormous: a stock bought for $10,000 that is worth $100,000 at death gets a fresh $100,000 basis, so the $90,000 of built-in gain simply disappears for income tax purposes.

The catch with jointly owned stock is that only the part included in the decedent’s estate gets the new basis. The survivor’s own retained share keeps its old, original basis. So your job is to figure out two things: how much of the stock counts as the decedent’s, and what the stock was worth on the day they died. Everything in this guide flows from those two questions.

A common misconception is that joint ownership means the whole account steps up automatically. It does not — except in community property. Mixing these up is the single most expensive error heirs make, and it usually surfaces years later when the survivor finally sells.

Which Situation Applies to You?

The right answer depends entirely on how the stock was titled and who the co-owner was. Find your situation below, then read the matching section.

• You owned the stock jointly with your spouse, in a common-law (separate-property) state → 50% step-up. See “Spousal Joint Tenancy.”
• You owned the stock jointly with your spouse, in a community property state → likely 100% step-up. See “Community Property.”
• You owned the stock jointly with a non-spouse (parent, child, sibling, partner) → the “consideration furnished” rule decides. See “Non-Spousal Joint Tenancy.”
• You held stock as tenants in common → only the decedent’s fractional share steps up. See “Tenancy in Common.”
• You gifted the stock to the decedent within a year of death → the step-up may be denied. See “The One-Year Gift-Back Trap.”

The form of ownership is usually printed on the brokerage statement or account agreement — look for “JTWROS,” “TBE,” “community property,” or “tenants in common.” If you are unsure, ask the brokerage in writing, because the title controls the tax result.

Spousal Joint Tenancy (JTWROS) in Common-Law States

Most states are common-law (separate-property) states, and most married couples there hold brokerage accounts as joint tenants with right of survivorship (JTWROS) or tenants by the entirety (TBE). When one spouse dies, IRC §2040(b) includes exactly 50% of the value in the deceased spouse’s estate — regardless of who actually funded the account.

The consequence is a half step-up. The deceased spouse’s 50% gets a new basis equal to half the date-of-death value, while the surviving spouse’s 50% keeps its original basis. This is automatic and does not require filing an estate tax return when the estate is below the $15 million 2026 exemption.

Real example — Maria in Ohio. Maria and her late husband Tom bought 1,000 shares of stock for $20,000 ($20/share). At Tom’s death the shares were worth $120,000 ($120/share). Maria’s half keeps its $10,000 basis. Tom’s half steps up to $60,000. Maria’s new total basis is $70,000. If she sells for $120,000, her taxable gain is $50,000 — not the $100,000 it would have been without the step-up.

A common misconception here is that a surviving spouse “inherits” the whole account and therefore gets a full step-up. In a common-law state, the survivor already owned half during life, so only the decedent’s half resets. What to do: ask the brokerage to record the date-of-death value (use the closing price on that date), split the lot in two, and keep the statement showing that value.

Community Property and the Double Step-Up

If you live in a community property state — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — the rule is far more generous. Under IRC §1014(b)(6), both halves of community property get a stepped-up basis when the first spouse dies, even the survivor’s own half.

This is the famous double step-up (really a “full” step-up at the first death, with a second step-up later at the survivor’s death). The consequence is dramatic: the survivor can often sell immediately for zero capital gains tax because the entire asset’s basis equals its date-of-death value.

Real example — Linda in Texas. Linda and her late husband held community-property stock bought for $20,000, worth $120,000 at his death. Both halves step up, so Linda’s full new basis is $120,000. If she sells for $120,000, her gain is $0 — compared with Maria’s $50,000 gain on identical facts in Ohio.

Several states (California, Arizona, Nevada, Wisconsin, and others) allow titling as community property with right of survivorship, which combines probate avoidance with the full step-up. A common misconception is that ordinary JTWROS titling in a community property state gets the double step-up — it may not, because titling the account as joint tenancy can rebut the community-property presumption. What to do: confirm the account is titled as community property, and in those states consider re-titling with the brokerage before a death occurs.

Non-Spousal Joint Tenancy and the “Consideration Furnished” Rule

When co-owners are not married — say a parent and child, or two siblings on a joint brokerage account — IRC §2040(a) applies. The default rule is that the entire value of the joint account is included in the first decedent’s estate, except the portion the survivor can prove they contributed with their own money (“consideration furnished”).

The consequence cuts two ways. If the decedent funded the whole account, 100% is included in their estate and the survivor gets a full step-up. If the survivor funded part of it, only the decedent’s contributed share is included and steps up. The burden of proof is on the survivor, so records matter.

Real example — David and his father. David’s father opened a joint account and deposited all $20,000 used to buy stock now worth $120,000 at his death. Because the father furnished 100% of the consideration, the full value is in his estate. David’s basis steps up to the full $120,000, even though they were not married.

A common misconception is that non-spousal joint tenants always split 50/50 for basis. They do not — contribution controls, not the number of names on the account. What to do: gather bank records, deposit slips, and brokerage histories proving who paid for the shares; without proof, the IRS may include the whole amount in the decedent’s estate (helpful for basis, but it can matter for larger estates).

Tenancy in Common

Tenancy in common (TIC) means each owner holds a separate, divisible fractional share with no automatic right of survivorship. When a tenant in common dies, only their fractional share passes through their estate and gets the step-up under IRC §1014. The survivors’ shares are untouched.

The consequence is straightforward: a 40% owner who dies leaves a 40% interest that steps up to 40% of date-of-death value, while a 60% co-owner keeps their original basis on their 60%. Unlike JTWROS, the decedent’s share does not automatically go to the co-owner — it passes to whoever the will or state intestacy law names.

Real example — the Nguyen siblings. Three siblings own stock as tenants in common, each a one-third share, original cost $30,000 total ($10,000 each). One sibling dies when the stock is worth $150,000. That sibling’s one-third ($50,000) steps up; the two survivors keep their $10,000 bases. A common misconception is that the surviving co-owners benefit — they do not, because only the decedent’s slice resets. What to do: confirm the title says “tenants in common,” and have the estate value only the decedent’s fractional interest.

How Each Ownership Type Compares

Ownership Type	Basis Result at a Co-Owner’s Death
Spousal JTWROS / TBE, common-law state	50% steps up under §2040(b); survivor’s half keeps old basis
Community property (9 states)	100% step-up on both halves under §1014(b)(6) — the double step-up
Non-spousal JTWROS	Decedent’s contributed share steps up under §2040(a); proof of contribution required
Tenancy in common	Only decedent’s fractional share steps up; survivors unchanged

Worked Example: Same Couple, Two States

Numbers make the gap obvious. Assume stock bought years ago for $20,000 that is worth $120,000 on the date of the first spouse’s death, and the survivor sells it that same year for $120,000.

• Common-law state (Ohio). New basis = $10,000 (survivor’s half, unchanged) + $60,000 (decedent’s half, stepped up) = $70,000. Gain on sale = $120,000 − $70,000 = $50,000. At a 15% long-term rate, tax ≈ $7,500.
• Community property state (Texas). New basis = $120,000 (both halves step up). Gain on sale = $120,000 − $120,000 = $0. Tax = $0.

The only difference is the state and the titling — same dollars, same stock, same sale. That single fact saves the Texas survivor roughly $7,500 in this example, and far more on larger, older positions. This is why community property couples often hold appreciated stock as community property and why advisors guard that titling carefully.

The One-Year Gift-Back Trap (§1014(e))

There is a powerful exception that can erase the step-up entirely. Under IRC §1014(e), if you gift appreciated property to someone, that person dies within one year, and the property passes back to you (the original donor) or your spouse, the step-up is denied. You keep the old carryover basis instead.

The consequence is that a “deed-to-die” plan — giving appreciated stock to a dying relative hoping to inherit it back with a fresh basis — fails if death comes within twelve months. The basis reverts to the donor’s original basis, wiping out the benefit. The rule exists precisely to stop that maneuver.

A common misconception is that any gift to a dying person produces a step-up. It does not when it returns to the donor within a year. What to do: if you are considering upward gifting to capture a step-up, document the gift date, understand the one-year clock, and do not count on the step-up if the donee may not survive a full year. This is the moment to call a tax attorney.

Basis Can Step Down, Too

The reset to fair market value is a two-way street. If the stock is worth less on the date of death than its original cost, §1014 steps the basis down to that lower value. The decedent’s share loses the built-in loss, so neither the estate nor the heir can deduct it later.

The consequence is that holding a sharply declined stock until death wastes a deductible loss. Real example — George’s tech stock. His half of jointly held shares cost $80,000 but was worth $30,000 at death; that half steps down to $15,000 (half of date-of-death value), erasing the loss. What to do: for stock with a built-in loss, consider selling before death to harvest the capital loss rather than letting the step-down vaporize it.

Reporting the Sale: Form 8949 and Schedule D

You do not report anything for income tax purposes at the death — the step-up just changes your basis. You report when you sell. The sale goes on Form 8949, then totals flow to Schedule D of your Form 1040. (See our guide on filling out Form 8949 and Schedule D for line-by-line help.)

Walk through it carefully:

• Holding period: Inherited stock is automatically long-term, no matter how briefly you held it after death, so report it in the long-term section (Part II) at the favorable 0/15/20% rates.
• Column (e) — cost or other basis: Enter your stepped-up (or stepped-down, or blended) basis from the rules above, not the original purchase price.
• Code adjustments: Brokers often report only the original basis on Form 1099-B. If so, enter code B in column (f) and the correction in column (g) so your true stepped-up basis is used.

The consequence of using the broker’s uncorrected basis is overpaying tax on phantom gain. What to do: keep the date-of-death valuation (closing price on that date), the brokerage statement, and a copy of any Form 706 if one was filed; file your return by the April 15, 2026 deadline for 2025 sales.

Deadlines, Costs, and Timing

For most families, no estate tax return is due because the estate is under the $15 million 2026 exemption. Form 706 is generally required only for taxable estates and is due nine months after death (with a six-month extension available). The basis step-up still applies even when no 706 is filed.

The income tax reporting happens whenever you sell, on that year’s Form 1040 by the following April 15. A DIY return with a simple stock sale costs little beyond software. A CPA’s help on basis and reporting typically runs a few hundred dollars, while an estate attorney for a complex or large estate may charge $1,500 and up. Get the valuation documented early — tracking down a date-of-death price years later is the slow, painful part.

Mistakes to Avoid

• Using the original purchase price as your basis. You overpay capital gains tax on gain the law already erased.
• Assuming a full step-up in a common-law state. Only 50% of spousal JTWROS steps up; using 100% understates your gain and invites an IRS adjustment.
• Assuming only 50% in a community property state. You forfeit the double step-up and overpay tax that should have been zero.
• Ignoring the consideration-furnished rule for non-spouses. Without contribution records, basis allocation can be wrong in either direction.
• Forgetting the §1014(e) one-year rule. Gifting appreciated stock to a dying relative and inheriting it back within a year gives you no step-up.
• Trusting the Form 1099-B basis blindly. Brokers often report pre-death basis; failing to adjust on Form 8949 means tax on phantom gain.
• Missing the date-of-death valuation. No documented value means disputes with the IRS and a weak position on audit.
• Overlooking a step-down. Letting a loss stock pass at death can erase a deductible loss you could have harvested.

Do’s and Don’ts

• Do confirm the exact title of the account (JTWROS, TBE, community property, TIC), because the title controls the tax outcome.
• Do record the closing price on the date of death, since that is the value that resets your basis.
• Do keep contribution records for non-spousal accounts, as the survivor bears the burden of proof under §2040(a).
• Do report inherited stock as long-term on Form 8949, because the favorable holding period is automatic.
• Do consult a CPA or estate attorney for large estates, mixed-property states, or recent gifts, where the rules turn sharp.
• Don’t rely on the 1099-B basis without checking it against your step-up, or you will overpay.
• Don’t use a “deed-to-die” gift plan casually, because §1014(e) can deny the step-up.
• Don’t assume all states treat spouses alike, since community vs. common-law makes a five-figure difference.
• Don’t sell loss stock automatically after death without checking whether a step-down already erased the loss.
• Don’t discard old account statements, because proving contribution and original basis can still matter.

Pros and Cons of Joint Stock Ownership for Basis

• Pro: JTWROS avoids probate, since the stock passes automatically to the survivor outside the will.
• Pro: Community property delivers a full double step-up, often wiping out capital gains tax entirely.
• Pro: Non-spousal joint accounts can produce a full step-up when the decedent funded everything.
• Pro: The step-up applies regardless of estate size, so even modest estates benefit.
• Pro: Inherited shares are always long-term, locking in the lower 0/15/20% rates.
• Con: Common-law spousal JTWROS only steps up half, leaving taxable gain on the survivor’s share.
• Con: Joint titling can rebut the community-property presumption and cost you the double step-up.
• Con: A creditor of either joint owner can reach the whole account during life.
• Con: Adding a non-spouse as a joint owner can be a taxable gift and complicate basis.
• Con: A built-in loss is wasted if the step-down applies at death.

What to Do Next

1. Pull the account agreement and confirm the exact form of ownership — this single fact decides your basis rule.
2. Get the date-of-death value: use the closing price of the stock on the day the co-owner died, and save the statement.
3. Apply the right rule: 50% (common-law spouse), 100% (community property), contribution-based (non-spouse), or fractional (TIC).
4. Gather contribution records if the co-owner was not your spouse, to support your basis allocation.
5. Report on sale using Form 8949 and Schedule D, correcting the broker’s basis with code B and column (g) if needed.
6. Call a professional — a CPA, tax attorney, or estate attorney — if the estate is large, the state is a community-property state, gifts were made within a year of death, or the records are incomplete.

This article is educational and is not a substitute for advice from a licensed tax or estate professional for your specific situation.

FAQs

What is the basis of jointly held stock when a spouse dies?

Half steps up in common-law states for tax year 2025: the decedent’s 50% resets to half the date-of-death value, and the survivor’s 50% keeps its original basis. Community property states step up 100%.

Do I get a full step-up on a joint account with my spouse?

No, not in a common-law state. Only 50% steps up under §2040(b). You get a full 100% step-up only in a community property state under §1014(b)(6), or where consideration rules apply.

What is the double step-up in basis?

It is the full reset of both spouses’ halves of community property at the first death, under §1014(b)(6). The survivor can often sell immediately with zero capital gains tax, then a second step-up occurs at the survivor’s death.

Which states are community property states?

Nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Couples there receive the full double step-up on community-property stock at the first spouse’s death.

How do I find the date-of-death value of a stock?

Use the closing price on the date the co-owner died, available from your brokerage or historical price data. For estate-tax filings, an average of the high and low trading prices that day is used.

Does jointly owned stock with a non-spouse get a step-up?

Yes, but only the decedent’s contributed share under §2040(a). If the decedent funded the whole account, 100% steps up. You must prove who contributed what.

Is inherited stock always long-term for capital gains?

Yes. Stock acquired from a decedent is automatically treated as long-term, no matter how briefly you hold it after death, so it qualifies for the 0%, 15%, or 20% rates in 2025.

Can basis go down when a co-owner dies?

Yes. If the stock is worth less than its cost at death, basis steps down to fair market value, erasing the built-in loss. Consider selling loss stock before death to keep the deduction.

What is the one-year gift-back rule?

It denies the step-up under §1014(e). If you gift appreciated stock to someone who dies within one year and it returns to you or your spouse, you keep the old carryover basis instead of a stepped-up one.

Do I need to file an estate tax return to get the step-up?

No. The step-up is automatic and does not require Form 706. A return is generally needed only for taxable estates above the $15 million 2026 exemption, but basis still resets regardless.

How do I report the sale of inherited stock?

On Form 8949, then Schedule D. Enter your stepped-up basis in column (e), and if the broker reported the wrong basis, use code B and column (g) to correct it.

Does my state tax the capital gain even if federal basis steps up?

Usually it follows federal basis, but rates and rules vary. Most states start from federal basis, so the step-up flows through; a few states with no income tax impose no capital gains tax at all.