Inherited asset generally come with a stepped-up cost basis. For example, suppose your grandparent initially purchased that $100,000 of stock for just $25,000 many years ago. You don't pay capital gains taxes based on the original purchase price of $25,000 initial value.
Inheritances — Your holding period is automatically considered to be more than one year. So, when you sell the inherited stock, it's subject to long-term capital treatment. This applies regardless of the actual holding period.
For inheritances, the basis is the fair market value of the asset at the time of the donor's death (or six months afterward, if the executor elects the alternative valuation date). This is the stepped-up basis).
Most of the time, you calculate the cost basis for inherited stock by determining the fair market value of the stock on the date that the person in question died.
You don't need to worry about paying taxes on inherited stocks held within an inherited IRA or 401(k) account. These accounts are tax-deferred, meaning that what happens in the account is not subject to tax purposes. The only taxable event in a pre-tax IRA or 401(k) occurs when you withdraw money from the account.
The IRS expects taxpayers to keep the original documentation for capital assets, such as real estate and investments. It uses these documents, along with third-party records, bank statements and published market data, to verify the cost basis of assets.
But when gains are inherited, the loophole zeroes out the gain for tax purposes. As a result, an investment sale that would create a taxable gain for the original owner is tax-free for the inheritor. Example: an investor buys 100 shares of stock for $200. Ten years later, the stock is worth $500.
For a lot of grievers, the six month slump is one of the unpredictable times. The first round of holidays after a death or the first birthday without someone are expected to be tough. But around 6 months, a lot of people are shocked by a sudden wave of grief. It feels like a setback.
Step-Up in Basis Exceptions and Special Circumstances
Revocable trust assets generally do receive step-up treatment. Gifting prior to death – the recipient of the gift typically will receive your original basis, also known as a “carryover basis” and will not receive the step-up in basis.
The process for liquidating inherited stock is fairly straightforward, as beneficiaries will often receive control over their share of the stock once they inherit it. Then, once the stock is in the beneficiary's brokerage account, they can sell the stock by placing a sell order through the brokerage.
Even if you don't sell the shares, if you receive dividends from the shares you've inherited, you will be liable for income tax on that income.
This guidance note explains how postmortem relief for inheritance tax can be obtained where quoted shares or securities are sold by executors or trustees of a qualifying interest in possession taxed on death within a year of death.
Inheritance checks are generally not reported to the IRS unless they involve cash or cash equivalents exceeding $10,000. Banks and financial institutions are required to report such transactions using Form 8300. Most inheritances are paid by regular check, wire transfer, or other means that don't qualify for reporting.
Go online for historical stock prices
For example, view the historical section at Marketwatch or Nasdaq. It's generally acceptable to take the lowest and highest price from a given day and average them to arrive at a cost. It's also acceptable to use the closing price on the day of purchase.
Weeks Before Death
As the end of life nears, extreme fatigue, confusion, and social withdrawal become more pronounced. Patients may engage in life review and focus on funeral planning, revealing their emotional state.
Tell them you're thinking of them
Sending someone who is grieving a message to say you're thinking of them will show them they don't have to cope alone. You may not be able to change what they are going through, but knowing you care could give them some comfort. "I've been thinking of you."
Teeth and nails will fall out in the coming weeks and as the body liquefies, it will lead to a reduction in insect activity. The body will turn from green to red. In the period from about a month to a year after death, skeletonization occurs, in which ultimately, only the dry skeletal remains will be left behind.
Current tax law does not allow you to take a capital gains tax break based on your age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales, though this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
Another key difference: While there is no federal inheritance tax, there is a federal estate tax. The federal estate tax generally applies to assets over $13.61 million in 2024 and $13.99 million in 2025, and the federal estate tax rate ranges from 18% to 40%.
The trust fund loophole refers to the “stepped-up basis rule” in U.S. tax law. The rule is a tax exemption that lets you use a trust to transfer appreciated assets to the trust's beneficiaries without paying the capital gains tax. Your “basis” in an asset is the price you paid for the asset.
In general, when you inherit property or assets, you get a step-up in cost basis. A step-up cost basis is usually the fair market value (FMV) on the date of your loved one's death. If the executor files an estate tax return, they could use an alternate valuation date of up to 6 months from the date of death.
The bottom line is that the IRS expects you to maintain records that identify the cost basis of your securities. If you don't have adequate records, you might have to rely on the cost basis that your brokerage firm reports—or you may be required to treat the cost basis as zero, which could mean owing more in taxes.
Under the wash sale rule, your loss is disallowed for tax purposes if you sell stock or other securities at a loss and then buy substantially identical stock or securities within 30 days before or 30 days after the sale.