what is the cost basis of inherited stock

Jackson

I recently inherited some stocks from a family member, and I'm trying to understand how to determine the cost basis for tax purposes. The situation is a bit confusing because I'm not sure if the cost basis is the original purchase price, the value at the time of inheritance, or something else entirely. How does this work, and are there any special rules or exceptions I should be aware of?

Gabriel

The cost basis of inherited stock is generally the fair market value of the stock on the date of the original owner's death. This is known as the "step-up in basis" rule. For example, if the stock was originally purchased for $50 per share but was worth $100 per share on the date of death, your cost basis would be $100 per share. This rule helps minimize capital gains taxes when you eventually sell the stock.

Owen

In most cases, the cost basis of inherited stock is reset to its fair market value at the time of the original owner's death. However, if the estate chooses an alternate valuation date (six months after the date of death), the basis could be the value on that later date. It's important to check the estate's tax filings to confirm which valuation method was used.

Asher

What happens if the stock value drops after the date of death? Does the cost basis still stay at the higher value?

Abigail

Asher Yes, the cost basis remains the fair market value on the date of death, even if the stock's value later decreases. This means you could potentially have a capital loss if you sell the stock for less than the stepped-up basis.

Santiago

Are there any exceptions to the step-up rule, like for jointly owned stocks?