Stock Inheritance
You mentioned tax breaks on inherited stocks if I hold them for at least a year. How much of a break and how do I file that. My sibling was hit with a 20% tax because she immediately cashed out upon the passing of my mom.😁
Terry Says
No, no, no — you’re confused.
First, if the stocks are owned OUTSIDE a retirement account, the person who inherits gets a new “cost basis” — the value of the shares on the date of death. At that point, if she sells, there is no capital gains tax — even if the decedent bought the shares many years earlier at a low cost.
If stocks or funds are held INSIDE an IRA or other retirement account, the rules are more complex — requiring distributions over the coming years, and the amounts depend on whether the decedent had already started taking RMDs. I won’t go into detail here. BUT, withdrawals from an inherited IRA or other retirement account (except a ROTH) are always taxed as ORDINARY INCOME, at your marginal tax bracket.
