Inheriting Stock

Q: I inherited some stock from my mom that are paying really good Dividends and Capital Gains each year.  Do we have to pay tax on that?

A:  Any dividends or capital gains that are issued to you are taxable.  They will send a 1099 at the end of the year with the information that needs to be reported.  The good news is that you also receive a step up in Basis on the date of your mother’s death to the Fair Market Value of the stocks on that day.  So, say your mom bought IBM stock back in 1971 for $9.15 a share.  If she gave the stock to you when she was alive, as a gift, you would have to use her Stock basis of $9.15 per share and pay tax on the capital gain when you sell it.  However, since you inherited it, at her death, you get  a step up in Basis to the $205.61 it’s trading at, on the day of her death.  Then when you sell it, you will use $205.61 as the basis, and if you sell it within 6 month of her death it is deemed that there s no gain on the sale.

I know it’s complicated, but we can certainly help, so please give us a call.