When unmarried individuals own property in joint tenancy, each owner's share of the property-and therefore the part of the basis that's stepped up when that owner dies-is determined by contribution to the purchase price. Since that could have a major impact on the taxes due when the stock is sold, check this point carefully if you live in one of these states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin. In community property states, the basis of the entire community property-not just half-may be increased to date-of-death value upon the death of one spouse. Basically, the survivor is treated as though he or she inherited half of each share of stock, with its basis increased to the date-of-death value. If you own stock or other assets with a spouse as joint tenants or tenants by the entirety-forms of ownership often used by married couples that ensure that on the death of one co-owner the survivor becomes the sole owner-the basis of what is transferred to the survivor is adjusted upward on the death of the co-owner. If the executor of the estate chooses to value assets using the alternate valuation date for estate tax purposes, the value on that date becomes your basis in the inherited stock. Using this exception, called the alternate valuation date, may make sense if the value of the estate's assets has fallen during the six months following the owner's death. The exception can set the basis of inherited property at its value six months after the owner died, or when it was sold if during that six month period. If the stock had lost value while owned by your benefactor, your basis is "stepped down" to the date of death value.Īn exception applies only when an estate is large enough for a federal estate tax return to be filed. If the stock price falls before you sell it, you can claim a tax loss. You are responsible only for the tax on appreciation after you inherit the stock.
Assuming the asset had appreciated since the original owner purchased it, the basis is "stepped up" to current market value, so the income tax on any profit that built up while the previous owner was alive is forgiven. When you inherit stock or other property, your basis is usually the value of the asset on the date of death of the previous owner.
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