What Is Inherited Stock?

Inherited stock refers to shares in a company that an individual receives through an inheritance after the original stockholder passes away. Unlike regular stocks, the increase in the value of inherited stock from when it was purchased to when the decedent's death is not taxed. Beneficiaries are only responsible for paying taxes on the capital gains earned after inheriting the stock, which is taxed at the 澳洲幸运5官方开奖结果体彩网:long-term capital gains rate.

Understanding Inherited Stock

Inherited stock, unlike 澳洲幸运5官方开奖结果体彩网:gifted securities, is not valued at its original 澳洲幸运5官方开奖结果体彩网:cost basis—a term used by tax accountants to descri🧸be the original value of an asܫset. When an individual inherits a stock, its cost basis is stepped up to the value of the security, at the date of the death.

The United States has taxed the transfer of wealth from a decedent's estate to their heirs since the passage of the 1916 Revenue Act, which complemented the existing income tax, in order to help finance America’s entry into World War One.

Proponents of this legislation argued that 澳洲幸运5官方开奖结果体彩网:taxing estates can help raise much-needed revenue while discouraging the concentration of wealth among a small percentage of individuals. Opponents of the estate tax, who frequently refer to it as the "澳洲幸运5官方开奖结果体彩网:Death Tax," argue that it’𒐪s unfair to tax someone’s wealth after it has already♈ been taxed as income.

The taxation of inherited stock is a highly contentious element in the debate over inheritance taxation, but it's also part of the conversation about 澳洲幸运5官方开奖结果体彩网:capital gain taxation methodologies. Foꦐr practical purposes, governments🅠 only tax capital gains after selling the underlying asset.

This differs from income taxes, which must be paid annually. Proponents of the stepped-up bas♎is exemption argue that capital gains should be taxed more lightly than income, in order to promote investment in the economy through increased consumer spending.

Inherited Stock and Estate Planning

Because heirs will not have to pay capital gains taxes on stock that are unsold at the time of a decedent's death, benefactors should resist the urge to sell off the equities they plan to bequeath to their heirs during their living years.

At the same time, heirs to stocks cannot claim a loss for losses incurred while the original owner was alive. Thus, if a decedent purchased a share of stock for $100, then the value plummeted to $25 by the date they passed, an heir's cost basis would be $25, and that $75 loss may not be used to offset gains with other investments.

Example of Inherited Stock

Consider a person who inherited 100 shares from a deceased relative. The 澳洲幸运5官方开奖结果体彩网:cost basis of these shares is equal to their🐷 value on the day of the owner’s death. In other words, taxes will be based on this new cost bas🍬is instead of the original cost.

After providing a death certif🌜icate, proof of identity, probate court order, and others, the heir can either transfer the shares into their account or sell the shares for the proceeds. Ultimately, this has the potential to save significant sums of mo𓃲ney due to the tax loophole.

The Bottom Line

Inherited stock refers to shares passed on to a beneficiary after the original owner's death. For tax purposes, the cost basis is adjusted to the market value at the time of inheritance, which often results in lower taxes for the heir when selling the stock. Beneficiaries are only liable for capital gains taxes on the appreciation after they inherit the stock, which is assessed at the long-term capital gains rate.