If you inherit stocks, there is no need for the executor of the estate to rummage through the decedent's paperwork to determine when and at what prices shares were purchased. The tax basis for an inherited stock is easy to determine. For a beneficiary selling inherited stocks, the tax basis for profit or loss is based on that date.
Tax Basis Date
Generally, the beneficiary's basis for any inherited property, including stocks, is the fair market value on the day the owner died. If he died on a weekend or a holiday, it's the fair market value on the last business day before he died. If the decedent had sold long-held and highly appreciated stocks before his death, his tax basis would have been the original purchase price of the shares.
Calculating Gains and Losses
Calculating gains and losses on inherited stocks is not difficult. For example, if the stock shares were worth $100,000 on the day of the decedent's death, and the beneficiary sold the shares for $110,000 a year after inheriting them, she will be taxed only on the $10,000 gain. If she sold the shares for $95,000, she may claim a $5,000 loss. If the shares sell for $100,000, no taxes are owed.
The executor or administrator of the estate is responsible for payment of any federal or estate taxes due. Certain states charge inheritance taxes to beneficiaries, although lineal descendants of the decedent might be exempt from paying the tax or pay lower rates. In some cases, beneficiaries might have to sell all or part of inherited stocks to pay this tax.
Inheritance Tax and State Revenue
According to Forbes, more states might consider instituting inheritance taxes to raise additional revenues. Stocks are considered intangible personal property for estate and inheritance purposes, unlike real estate or real property. When inheriting stock, check with your state's department of revenue or the estate's attorney to determine any inheritance tax owed.
- Creatas/Creatas/Getty Images