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I have a question involving a purposed sale of stock held jointly with my sister and more precisely what my options are concerning the reporting of the capital gain.

In 1996 my sister and I were issued a paper stock certificate as Joint Tenants with Rights of Survivorship (JT TEN) while finalizing our parent's estate. From the beginning I feel this was a mistake and the shares should have been split up, two separate certificates issued and the last odd share distributed via cash payment to each of us. But that is not what happened.

Today, nine years later my sister has blown her inheritance and needs the cash. The problem I am facing is that my SS# is the only one on record so any sale of all or partial shares will fetch me a capital gain. I personally would like to transfer my half of the shares to my broker and sell hers.

E*trade's response to this question is:

“Our records show you are the primary holder in your joint account with your spouse. If you deposited the certificate in your joint account you would be liable for the capital gain.

If you and your sister opened a joint account with her as the primary and you as the co-holder and deposited and sold the stock your sister would be liable for the capital gains. If you do not want to open an account to match the registration of the certificate your sister can open an individual account in her name and when you send the stock certificate you need to include a notarized letter of authorization from you authorizing to relinquish the shares. Once she sells the stock she will be liable for any taxes regarding the shares.”

The first response seems the best for my situation considering my sister does not want to open an account. So should I just sell her half and withhold 5% for the expected long term capital gain I would have to pay next year?


I see a problem here. You cannot deposit the shares into a joint account with your wife if the shares are held jointly with your sister. The only easy solution is to open a new account with your sister and deposit the shares into that account. Then you can split the account, your sister can sell her half, you can sell or transfer your half and you can close the account.

Let's assume for now that you sell all of the stock and your SSN is primary on the account. As Bill has commented in another reply, the broker will report 100% of the sale proceeds to the primary SSN on the account. You will report 100% of the sale on one line of Schedule D and on the next line will subtract out 50% of the gain. To complete the picture, you should issue a nominee Form 1099-B to your sister for her share of the sale. See the general instructions for the 1099 series for details. www.irs.gov/pub/irs-pdf/i1099.pdf.

Ira
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