Question

16. Nick inherits 100 shares of Moon Mining stock from his mother. The mother’s estate did not make any elections on valuation. The stock was included in the estate at a value of $100,000. When Nick receives the stock he immediately sells it for $125,000.

a) Does Nick recognize income from receiving the stock as an inheritance? Why or why not?

b) Does Nick recognize gain or loss on the sale of the stock and if yes, how much is it?

c) If there is a gain or loss recognized is it long-term or short term?

Answer 1

a. Nick will not recognize the income from receiving the stock as an inheritance because when the stock is received as an inheritance, the estate of deceased person is liable to tax.

b. Sale of inherited stock is taxable if the selling price is greater than value of the stock on the date when the estate is valued. In the given case the selling price is $125,000 and value of stock in estate is $100,000. Thus Nick will recognize gain of $25,000 ($125,000 - $100,000).

c. As per IRS, all the gains earned by sale of inherited capital assets, will be treated as long term irrespective of its holding period. Stocks being capital assets, the gain earned by Nick will be recognized as long term.