How to Pay Capital Gains Selling Inherited Stock
While the basic rules for paying capital gains on inherited stock are the same as for any type of stock, there are some accounting adjustments that could affect the gain/loss calculations for heirs. Fortunately, IRS rules in this instance typically work out for the benefit of the taxpayer who inherited the stock.
Other People Are Reading
Instructions
-
-
1
Price stocks as of the date of death. One of the tax benefits of inherited stock is that the cost basis, or purchase price, is adjusted to the decedent's date of death (or to the "alternate valuation date," if decided on by the executor of the estate). This usually results in a much smaller tax liability for heirs. For example, if a person bought a stock for $10,000 10 years prior and the value has now grown to $25,000, the heir obtains a cost basis of $25,000, not $10,000, for their inherited shares. If they sell immediately, there is no tax liability, instead of a taxable gain of $15,000. So, the first step in paying capital gains on inherited stock is to find out the "original" purchase price, which in the case of the heir becomes the value of the stock on the date of the decedent's death.
-
2
Collect your sales transaction data. After you sell a stock, you should receive a confirmation specifying the date of sale and the amount of sale proceeds. If you do not keep this confirmation, you should receive a Form 1099-B at the end of the year from your financial services firm. While the 1099 will not show the purchase price of the stock, it will show the sales proceeds, which you can match up to the cost basis obtained from the date of the decedent's death.
-
-
3
Consult Schedule D of Form 1040. As with any stock sales, inherited stock sales must be reported on Schedule D. Follow the instructions and list your stock information according to the length of time you held the stock, either short-term (up to and including one year) or long-term (over one year). Enter the date of purchase and the cost basis, along with the date of the sale and the sales proceeds, and calculate your net capital gain. Transfer this amount to line 13 of your federal Form 1040.
-
4
File your taxes. Once you have properly completed Schedule D, attach it to your Form 1040 and file your tax return. You may want to consult a tax adviser if you have numerous stock transactions, or if your return is otherwise complicated.
-
1
