Cost Basis of Inherited Assets and Gifted Assets

All assets included in your taxable estate receive a "stepped up" cost basis upon your death. The value of these assets on your date of death, as reported on your estate tax return or probate inventory, becomes the new cost basis of these assets.

This rule makes it easy for your beneficiaries to calculate capital gains on inherited real estate and investments, and in most cases, eliminates capital gains taxes when the inherited assets are sold.

Experienced Massachusetts Law Firm: Estate and Gift Tax Matters

Most children have no idea what their parents paid for their investments or what their grandfather's vacation home was worth when their father inherited it. When they inherit the stock or the vacation home, their cost basis is whatever the stock or real estate is worth on the parent's date of death.

Contact Roberta A. Schreiber, P.C., today in North Reading, Massachusetts, to learn more about cost basis of inherited assets and gifted assets. She is an experienced attorney with more than 30 years of experience helping individuals in Middlesex County, Wilmington, Lynnfield and Wakefield.

Example: Your father started acquiring Apple stock years ago, buying stock over a 10-year period. You are not sure what he paid, but you know he paid a fraction of what it is worth now. When he died, he left 1,500 shares of the stock to you in his Will. The value of the stock is $530/share or $795,000. When this amount is added to the value of his home and other investments, his estate is worth about $2,000,000. The Massachusetts estate tax is $99,600. The good news is that when you sell some of the stock to pay the estate taxes, you will have to pay little or nothing in capital gains taxes. If you sell 750 shares of stock for $535/share, your capital gain is $5/share ($535/share minus $530/share), or $3,750. Whatever the stock was worth on your father's date of death becomes your cost basis. If you sell the stock within one year from your father's date of death, the capital gain ($3,750) will be taxed as ordinary income. If you can wait for a year to sell the stock, you will be taxed at the long-term capital gains tax rate (which is 15, 20 or 25 percent, depending on your personal income tax bracket). If you don't need the funds immediately, you should consult with your estate planning attorney or accountant before selling the stock, to determine when to sell.

Contact Us to Schedule Your Initial Consultation

For an initial consultation with Roberta about your estate and gift tax needs, please contact us. Our North Reading lawyer will provide the catered legal counsel that you need.

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Roberta A. Schreiber, P.C.
Suite 108
348 Park Street
North Reading, MA 01864-2153

Phone: (978) 664-2552
Fax: (978) 664-9227
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