The tax impact of selling stock you inherited is a little tricky, because you didn’t pay anything to acquire it. Capital gains tax normally is calculated by subtracting your cost from the sales proceeds. Your cost is called “basis.” A similar process applies to selling inherited stock. You subtract a basis that’s different than cost. Instead of cost, you substitute the fair market value of the stock on the date of death for the person from whom you inherited it. Report the sale of stock you inherited as a long-term capital gain regardless of how long you owned it.
Check box A at the top of Form 8949, Part II, if the Form 1099-B from the broker executing the stock sale shows cost basis for the transaction was reported to the IRS. If the 1099-B indicates basis was not reported to the IRS, check box B.
Describe the number of shares sold and the stock symbol in column (a) of Form 8949, Part II.
Write “INHERITED” in column (c).
Place the date you sold the stock in column (d).
Record in column (e) the sales proceeds for the inherited stock that is listed on Form 1099-B.
State the fair market value of the stock on the date of death in column (f). Use the basis reported on Form 1099-B if different that the date of death value.
Enter an adjustment in column (g) if the Form 1099-B reports a basis for the sold stock that is different than the value on the date of death. Show increase or decrease in the 1099-B basis amount to reach the correct date of death value. Also enter code “B” in column (b). Enter a code “T” in column (b) if the 1099-B incorrectly states the gain is short-term.
Complete column (h) by subtracting the basis from sales proceeds, taking into account any adjustment in column (g).
Transfer the totals on line 4 of Form 8949 to either line 8 or line 9 of Schedule D, depending on whether you checked box A or box B on the 8949.
Complete Schedule D by including any capital gains or losses for other property and following the instructions on each line to arrive at the total capital gains tax calculation.
Items you will need
- Form 1099-B reporting the stock sale
- Form 8949, Part II.
- Schedule D
- Make sure the personal representative for the estate did not use an alternate valuation date for the value of estate property, such as the stock. If this election was made, your basis in the stock is the value on the alternative date rather than the date of death.
- (Reference 1)
- If you sold property that you inherited from someone who died in 2010 and the executor made the election to file Form 8939, your basis is different than the value on the date of death.