How to Calculate Capital Gains for Decedent Stocks
The basis on stocks you inherent resets on the date of the decedent's death.
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In most circumstances, determining the amount of capital gains tax you owe on the sale of a stock is a matter of simple arithmetic. You subtract the sale price from the price at which you sold it, determine if it is a short- or long-term gain, and apply the applicable gains tax rate. If you inherit stocks, determining capital gains becomes a little muddied and requires a little bit of research. You’re likely to receive better treatment on gains of inherited stock than an identical purchase you made for yourself on the same date the stock’s original owner made his.
Consult the decedent’s estate tax return to determine if the value of the stock was already determined during estate-tax assessment. If it is, use this figure as the stock’s basis, and skip to Step 3.
Step 2Determine the value of the stock on the date its previous owner died, not on the date that you took possession of the stocks. Consult historic stock price records, and reference the high and low price for the stock on that date. Average the high and low price for the day to calculate the stock’s value. Use this averaged price as the stock’s basis.
Step 3Subtract the stock’s basis from its sale price. This figure is the net gain or loss for the sale, and is the amount, if a gain, that is subject to capital gains tax.
Step 4Calculate your capital gains tax using the rate applicable to your tax bracket. Because the IRS always taxes inherited property at the long-term rate, your tax rate is either zero percent, for taxpayers in marginal tax brackets of 10 or 15 percent, or 15 percent for all others.
References
Tips
- As with any other capital gain, you can claim capital losses on bad investments in the same year you sell an inherited stock and use the loss to offset your profit and reduce your taxable gains.
Warnings
- If the executor of the deceased's will uses an alternate valuation date, or AVD, when she calculates estate taxes, you must use this date to determine the stock's historical price rather than the date on which the decedent died. Consult estate tax returns to determine the valuation date.
Writer Bio
Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.