When a taxpayer dies, their assets become part of their estate. If the asset is transferred to an heir, under current rules, the basis is stepped up to the market value at the time of death. If the heir sells the asset, the gain subject to tax would be the appreciation that occurred since inheriting the asset. So, the subsequent sale wouldn't be reported on your son's return.
Please see this TurboTax tips article and this help article for more details regarding filing a return for a deceased person. In the Personal info section of TurboTax, a question appears asking if the person for whom the return is being filed has died.
Upon the death of a taxpayer, a new taxpaying entity—the taxpayer's estate—is born to make sure no taxable income falls through the cracks. Generally, income is taxed either:
- on the taxpayer's final return,
- on the return of the beneficiary who acquires the right to receive the income, or
- on the estate's or a trust's income tax return, if the estate or trust receives $600 or more of income.
The filing of the deceased taxpayer's final return usually falls to the executor or administrator of the estate, but if neither is named, then the task needs to be taken over by a survivor of the deceased. The final return is filed on the same form that would have been used if the taxpayer were still alive, but "Deceased:" is written at the top of the return followed by the person's name and the date of death. The deadline to file a final return is the tax filing deadline of the year following the taxpayer's death.
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