Capital Gains on Sale of INHERITED Stock ?

[BoomBoomJ]

Isn't this supposed to be considered "Long Term" rather than "Short Term"?   And ultimately, what difference might it make? 

[tagteam · Accepted solution]

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@BoomBoomJ wrote:

Isn't this supposed to be considered "Long Term" rather than "Short Term"?   And ultimately, what difference might it make? 

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Yes, the holding period for property acquired from a decedent is long-term. 

The difference is short-term capital gains are taxed at the same rate as ordinary income while long-term capital gains get preferential (LTCG rate) treatment.

[BoomBoomJ]

Thank you so much TagTeam!   So it appears though that this one [1] transaction I have in TurboTax Deluxe is categorizing it as "Short Term" ??  How do I change (or make sure) that it is Long Term?

[tagteam]

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@BoomBoomJ wrote:

Thank you so much TagTeam!   So it appears though that this one [1] transaction I have in TurboTax Deluxe is categorizing it as "Short Term" ??  How do I change (or make sure) that it is Long Term?

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@BoomBoomJ You need to indicate that the property (stock, fund, or whatever) was inherited); the program will then automatically classify the transaction as long-term.

[BoomBoomJ]

Thanks again TagTeam!    I may need to "upgrade" to TT Premier (??) as I did not see anywhere in TT Deluxe where that distinction (ie. that the stock was inherited ) could be made ....  Did I miss something?

[Anonymous]

in the date acquired box on the 8949 worksheet type in "inherited"  that will move it to long-term 

[BoomBoomJ]

AWESOME HackItOff !   That's exactly the  info that we needed!   Thanks so much!

[DavidF2]

I agree that inherited stock is considered a long term gain regardless of when it is sold.  Question... How do you enter inherited stock in TurboTax so it is considered a long term gain if it is sold 3 months from the date acquired?  Since I transfer multiple stock transactions (100+) from Merrill Lynch (ML) I hope to modify 30 which are inherited stocks sold 3 months from acquired date date.  How is this done?   Is it in the transfer information from ML?               

[Mike9241]

in date acquired enter "inherited"

in theory, the cost basis should not be reported to the iRS

what you have to do really depends on how the broker reports it.

[RayW7]

Mike9241 is correct regarding his answer on entering 'Inherited'  in the date acquired field to indicate Long Term Gains from the sale of inherited stock.

You should review your 1099-B before importing and if necessary manually enter the transitions.

The tax rate for long-term gains is lower than the rate on short-term gains or your regular income tax rate.

Note: Regarding basis:

When you inherit stock or other property, your basis is usually the value of the asset on the date of death of the previous owner. Assuming the asset had appreciated since the original owner purchased it, the basis is "stepped up" to current market value, so the income tax on any profit that built up while the previous owner was alive is forgiven. You are responsible only for the tax on appreciation after you inherit the stock. If the stock price falls before you sell it, you can claim a tax loss. If the stock had lost value while owned by your benefactor, your basis is "stepped down" to the date of death value.

An exception applies only when an estate is large enough for a federal estate tax return to be filed. The exception can set the basis of inherited property at its value six months after the owner died, or when it was sold if during that six month period. Using this exception, called the alternate valuation date, may make sense if the value of the estate's assets has fallen during the six months following the owner's death. If the executor of the estate chooses to value assets using the alternate valuation date for estate tax purposes, the value on that date becomes your basis in the inherited stock.​​​​​​

[Lksium19]

@RayW7 Does this also apply also when filing an estate income tax return, form 1041?

I am the executor of someone’s estate and am filing an estate income tax return for the first and likely last time for the estate. There were stocks held in 3 different companies that were changed over to be owned by her estate and then I have subsequently cashed those stocks out and the money is in an estate bank account.  From what I have read from multiple sources, I should be able to do the step up in basis for her so that the cost basis was the value at the date of her death, but not with an alternate valuation date because her estate is under the 11 mil threshold (by many many millions 😁).  All of her stock prices increased so I was hoping to further decrease the tax liability on those gains. Would I also put “inherited” in the TurboTax software or do I change it to a long term gain manually to allow for that?

[AmyC]

Yes on all counts. The valuation at date of death for the stocks is used plus any expenses to sell the stock, becomes the basis. The date should be inherited and long term is the period to select.

I am sorry for your loss.