Mother in law passed away last December. We inherited a bond from
her. This bond was called recently at the purchase price of 100 each
unit ($3000). When we inherited the bond it was down to 91 for each
unit (on the day she passed). Do we owe taxes on the difference
gained (9 per share) or just on the dividends we earned for the first
quarter of this year? I do know that the cost basis of stocks is
based on the day you inherited them, but not sure about the bonds.
SandyBeth

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I need some help with Roth IRAs.

I checked my mother’s 2007 tax returns this week and discovered that
she has 2 problems that she needs to correct. First, she did not take
the Required Minimum Distribution for an IRA she had. Second, she
converted that IRA to a Roth IRA (added to an existing Roth IRA
account) and paid taxes on the conversion, but she ended up making
over the $100,000 limit (not including the Roth IRA conversion income)
due to large capital gain distributions by her mutual funds this
year. Below is what I think she needs to do to correct the problem
along with some questions. Please let me know if I’m missing
something. Thanks for your help!

1) Need to recharacterize the amount converted from IRA to Roth IRA
for 2007.

(a) She needs to include earnings that were made after the
conversion. But how does she determine that since it was mixed into
an existing Roth IRA?
(b) Does she need to file any forms saying she is recharacterizing the
Roth amount back to an IRA?
© Does she owe any penalties?