Inheriting stocks and selling them

[squidlady]

My father had a stock account using his SSN, showing both his name and mine (right of survivorship). He just died. Am I allowed to sell the stocks now, as the account stands vested? And - are the proceeds from the sale taxable on my taxes? On his when I do his next year? Do I figure capital gains on the difference between the stocks' value on the day he died and the day I sell, if the proceeds are taxable?

There is no inheritance tax in his state nor in mine. Thank you.

[Opus 17 · Accepted solution]

Legal issue: do you own the stocks now free and clear or do you have to go through probate?

Answer: I don't know, it will depend on how the account was titled and the laws of your state.  A joint account may be different than a survivors account.  I assume you will be getting legal advice on other estate matters (selling a house, etc.). Ask the attorney this question too.

Tax question: What's taxable?

Answer: If you inherited the stocks, then your cost basis is the value on the day he died.  The proceeds from a sale would be taxable to the extent you have a capital gain (sell for more than the price on the day he died.)  However, if you were made a co-owner by gift when the account was placed in your name, things become much more complicated.  "Right of survivorship" usually means that you inherited the stocks at their full value on the day he died, but this again might be worth having reviewed.

[squidlady · Accepted solution]

Hello @Opus 17  and thank you for this information. I do indeed have an attorney in the state where Dad lived and will ask him these questions. I imagine TT will also ask the proper questions when I do both of our taxes next year. (His state does require probate, we are working on that now). Thank you so much.

[Opus 17 · Accepted solution]

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@squidlady wrote:

Hello @Opus 17  and thank you for this information. I do indeed have an attorney in the state where Dad lived and will ask him these questions. I imagine TT will also ask the proper questions when I do both of our taxes next year. (His state does require probate, we are working on that now). Thank you so much.

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Turbotax won't know whether you inherited the stocks at their full stepped up value or not, since that will depend on state law and how the account was titled.

Turbotax will ask the date you acquired the stock (the date your dad died), the method by which acquired (inheritance), the date of sale, the selling price, and the cost basis.  This last item (cost basis) you will most likely need to provide yourself, based on your legal advice.  (The broker might provide a figure, but it might not be correct.)

In the best case scenario for you, you inherited the shares at their full value on the date your father died.  So it won't hurt to start gathering that information now.  (There are various web sites that can give you stock prices for any given date.)

In the scenario where you were a co-owner, your cost basis will be a blend of the price your father paid, and the share price on the day he died.  Hopefully not, but that's why you need to ask an attorney about how the account was titled.  If it comes to that, we can explain how to calculate your adjusted basis in that scenario.

[squidlady]

@Opus 17 wow, thank you again for the speedy and detailed information. I really appreciate it.