Sale of Inherited Stock

Any capital gain or loss that is the result of selling inherited stock is always long-term. This rule applies regardless of how long you or the original owner owned the shares. You are not responsible for taxes on any gain that occurred while the original owner was alive.

If the stock appreciated during the original owner’s lifetime, the cost basis is “stepped up” to the fair market value on the date of death.

If the stock has fallen in value, the cost basis is stepped down to the fair market value on the date of death. Your gain or loss then depends on changes in the stock price that occur after the death of the original owner. You cannot use any capital loss on the shares that occurred prior to the date of death as a tax deduction.