If a person was added as a joint owner to a stock (not having contributed anything), and the original person died, would 1/2 of the stock value be considered a step-up in basis?

Actually, a case could be made that the full 100% of the stock would be stepped-up in basis, since the secondary joint owner contributed ZERO basis.

In general, yes. Assuming that the ownership was "joint ownership with rights of survivorship," the survivor's original basis on his half of the property is equal to what the original owner's basis was at the time it changed to joint ownership. At that time the granting of joint ownership was a gift from the first person to the second (which may have triggered gift tax issues, but that's a different topic). Then when the first person died the basis for that person's half was stepped up to market value as of the date of death.

For example, suppose there was 100 shares of stock originally bought at $20/share, for a total basis of $2000. Then the stock rises in value to $40/share, and the 2nd person is made a joint owner - his basis is half the $2000 original basis, or $1000, and the original owner's basis is also $1000. Then when the first person dies assume the stock was valued at $80/share: the 2nd person inherits half the stock with that stepped-up basis, and so he ends up with 100 shares with cost basis of (50 x $80/share) + $1000 = $5000.

Given what ebaines has said, a better option than joint ownership would be to make the secondary owner the "heir" to the stock account. That way, 100% of the stock is stepped up!

Thanks ebaines,

That makes perfect sense.

I agree with ATE's first response and not with ebaines. Treas. Reg. §25.2511-1(h)(4) says: "(4) If A creates a joint bank account for himself and B (or a similar type of ownership by which A can regain the entire fund without B's consent), there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn without any obligation to account for a part of the proceeds to A. Similarly, if A purchases a United States savings bond registered as payable to “A or B,” there is a gift to B when B surrenders the bond for cash without any obligation to account for a part of the proceeds to A." See also Rev. Rul. 69-148.

I don't think there is a gift at the time made a joint owner. And I think the full amount would get a step up in basis.