Inherited stock

Submitted by Robert Roselli on Mon, 2019-12-09 17:08

I have a client that is inheriting stock from his mother. He is entitled to 179 shares. The basis in the stock is $ 9.7615. The price as of the date of death is $ 79.03. The basis is $ 1,747.31 (179*9.7615). The stock price as of the date of death, which was 07/16/19, was $ 79.03. So the market value was $ 14,146.37 (179*79.03).

If he sells the stock that is still held in his mother’s name, will he have to pay the capital gain? Does he have to set up his own account to get the step in basis?

Thanks



Submitted by Alan - IRA critic on Mon, 2019-12-09 17:44

A death certificate and other beneficiary data must be supplied to the current broker before client can request any transactions. The shares will have to be transferred into an account owned by the client and client can then sell the shares. If he sells all the shares the cost basis will be 14,146. If there were gains after death, they will be taxed at the LT cap gain rate. If the shares sell for less than 14,146 client will report a LT cap loss. Note that the basis as of the DOD is the median price between the high and low prices for that day, not the closing price, so if 79.03 was the closing price, it is likely not correct.

Submitted by Robert Roselli on Mon, 2019-12-09 17:54

I understand the 79.03 is likely not correct. What happens if he elects to sell the stock now? Will the basis be his mother’s basis of $ 9.7615?

Submitted by Alan - IRA critic on Mon, 2019-12-09 18:30

  • No. He cannot sell the stock until it is transferred to his own account. If he has a POA, the POA automatically became void on 7/16. It would not be legal to sell it with an expired POA so the sale would be reported to his deceased mother. In other words, his basis adjustment is downward (a step down).  He would only be able to report a loss on his own return if the price drops below his stepped down basis when he sells.
  • If the shares passed to mother’s estate, the same rules apply if the executor sells the shares or if they are not sold until they are registered to the client after they are distributed from the estate to client’s account.

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