Sale of Inherited stock

[mdelacourt]

I imported consolidated 1099 statement data from my financial institution and it classifies sales of all of the inherited stocks as short-term.  It is my understanding that inherited stock sales are always treated as long-term.  How do I change the designation of the sale from short-term to long-term? 

[JohnB5677 · Accepted solution]

You are correct.  All of the inherited stock is classified as long term, and the cost basis is the fair market value (Value on the day of the passing).

You should enter everything exactly as it appears on the 1099-B.  This is the IRS’s reference point.  Once you’ve entered the transaction there is an opportunity to make adjustments.

1. Once you’ve entered the transaction.
2. Scroll down the page to I’ll enter additional info on my own
3. Look down to Box 2
   1. Corrected Cost Basis
   2. Corrected holding period
   3. Also check This item was inherited

This will properly post these stock transactions.

[treis]

How does the transaction get recorded in the final box?  Does it calculate the sale as the difference between the inherited cost and current cost?  So if the stock is worth $20 more per share then the inherited date, do you only pay taxes on the $20 per share?  How does it calculate as gain/loss?  

[JamesG1]

As an example, you inherited a share of stock.  The deceased had purchased the stock share at $5.  

The stock price on the date of death was $20 and you are allowed to use this number as your adjusted cost basis.

If you sold the share at $40, you would have a $20 long-term gain on the sale.  You pay taxes on the $20 gain.

The gain is reported on Schedule D of the 1040 tax return.

See also here.