Question

W inherited stock when her father died in 2019. Her father purchased the stock several years ago for $30,000. The stock was worth $80,000 when her father died. W sold the stock for $100,000 in 2020. How much gain, if any, should W report on her 2020 tax return?

Answer 1

W inherited stock when her father died in 2019.

The stock was worth $80,000 when her father died.

Thus the value of the stock increased from $30,000 to $80,000 when her father was alive, this value does not get taxed.

W will only have to pay tax on capital gains when the stock value increases during her lifetime. Thus from $80,000.

Cost basis is according to the value of the stock as per the date of inheritance.

Cost is stepped up to the value of the security as per the date of inheritance.

Thus gain W would report will be $100,000 - $80,000 = $20,000

$20,000 would be the gain W would report on her 2020 tax return as she gained that much value after selling the stock.