Inherited Stock Cost Basis: A Retrospective Look
As an investor, understanding the cost basis of your inherited stock is critical. This refers to the original value of the asset when it was first purchased by the previous owner or donor. It affects how much tax you pay on any gains when you sell.
Firstly, it’s important to determine whether the stock has been passed down through a will or trust fund. If it’s through a will, then the cost basis is usually determined on the date of death (or close thereof) of the deceased person whose property is being considered.
On the other hand, if inheritance occurs through a trust fund, then there are two options for determining cost-basis depending on trustee discretion in relation to state law requirements – either using fair market value as at time of death or considering carryover basis.
It’s worth noting that there are some instances where you could be eligible for stepped-up basis which could reduce capital gains taxes owed should you decide to sell inherited stocks later.
Overall, understanding rules surrounding inherited stock cost-basis can make all difference in investing and tax returns management.