Which inherited stocks to sell to avoid taxes?
I inherited a portfolio of stocks & mutual funds from my parents about 7 years ago. When I last sold a few of these stocks, my income tax bill was huge and a big surprise. Now, I want to sell more of these stocks to finance a home remodel project. I want to know which stocks or mutual funds to sell to: 1) keep my taxes as low as possible and 2) how to know in advance about what my taxes on these sale will be. Thanks for your help!
Terry Says
OK, your “cost basis” on these stocks is the value on the date of death of the parent who owned the stock. Did they die at the same time? Not likely. So you can use the value of the date of the death of the last to die — assuming those stocks were held in joint name.
To get a rough estimate of the value, go to CNBC and insert the stock symbol, and when you get to that stock page click on the graph of prices for the last 10 years. That should get you close, if you didn’t actually document the price when the last to die passed on.
Now, what to sell? First look at the gain in each stock from the cost date to today. (Be sure to take into account the number of share, stock splits, etc.) Do you have any losers? You could sell those to offset the gains. So make a list of your current situation in each case.
If you have net gains, you’ll pay capital gains taxes — the lowest tax rate you can pay. Talk to your accountant and check on how much you can sell without moving into a higher tax bracket on your return (or joint return).
And also check here — to see how much more income you can have before your Medicare Part B and D premiums start to rise dramatically: https://www.medicare.gov/publications/11579-medicare-costs.pdf
The actual impact would be felt two years down the road, when they look back to this year to find your income bracket.
You should plan on about 20% in capital gains taxes, unless you are in a very low tax bracket. Read this to get an idea: https://www.fidelity.com/learning-center/smart-money/capital-gains-tax-rates
Set the money aside and ask your accountant if you should make a quarterly estimated tax deposit. It all depends on your situation. So plan ahead!
