In 2020 I inherited my fathers stocks. Most of the stocks have gained value. From what I understand, I'll only be taxed on the increased value if I sell. I cant type more

[leonie0105-yahoo]

My question is , if \ when I sell said stocks, how do they determine what was interest and what was the initial value. How exactly can I avoid being taxed? I don't want to sell all of it, just enough to buy a house.

[MinhT1]

When you inherit stocks, the cost basis of the stocks for you is the fair market value of those stocks at the time of death of the previous owner. And the holding period is automatically considered as more than one year.

So at the time you sell the stocks, you pay taxes on long-term capital gains between the sale price and your cost basis (which is the FMV of the stocks at the time of death of the previous owner).

[leonie0105-yahoo]

Thank you for your reply.

If I can pose a hypothetical to help me understand. Let’s say there were 100 shares of stock at $100 ,total value at time of death would be $10000
since that time The stock doubled in value to $200 per share. The value is now $20k. I want to sell 50 shares & cash out $10k. How do we determine what is interest & what is original value for taxes?

[JulieS]

There is no interest on the sale of stock.

If you inherited 100 shares of stock at $100 per share at the time of inheritance, your basis in that stock is $10,000, no matter whether you sell it the next day or ten years later. 

If you later sell 50 of these shares, You will get a 1099-B form which shows the amount you received when you sold it. You report the figures from the 1099-B form on your tax return and you report $5,000 as your basis in box 1e. 

Say your stock is now worth $200 per share, your sale price will be $10,000 (slightly less if you pay a commission on the sale).

The tax calculation (done by TurboTax) is gross proceeds (sale price) $10,000 - $5.000 Basis = $5,000 long term capital gain.

If your stock has any current income, namely dividends, you will also receive a 1099-DIV from the broker holding the stock. You report that on your tax return as well.