Posted on July 27, 2006 at 17:21:49:
When you inherit securities – just like any other assets – your basis in the property is its value at the death of the bequestor (or, in certain cases, six months after). Any appreciation of its value during the lifetime of the original owner, which can be considerable, escapes taxation.
The inherited property is considered a long-term asset, so when it is sold, any gain is a long-term gain for tax purposes, taxable at lower rates. When reporting such sales on a tax return, it’s appropriate to write “inherited” where the form asks for the date of acquisition.
One side note: this situation is likely to change if estate taxes are repealed. As a new law currently proposes, heirs would inherit securities and take over the basis of the original owner. When the assets are sold, then the heirs would owe taxes on the entire appreciation of the property over the years.