I inherited stock worth $67,000 in May 2000 and sold it for about $64,000 in March 2001 to make a downpayment on a house. I don't owe tax on the whole $64,000, do I? I only owe the difference between the original cost and the selling price, right?
When you inherit stock, your cost basis is generally the stock's value when the previous owner died. This is called the "step-up in basis," which means that nobody ends up paying taxes on the gains the stock had while the original owner was alive.
Your cost basis, for example, would be $67,000.
Now the good news: Since you sold the stock for less than your basis, you'd have a $3,000 capital loss. Inherited stock is automatically
considered a long-term holding, regardless of how long you've owned it.
So you can first use that loss to offset any long-term gains (from
stocks owned more than a year); then use any left-over losses to offest
short-term capital gains (from stock you've owned for less than a year).
If you still have losses left over, you can deduct them from your other income. Anything left over from 2001 can be carried over to future years.
GETTING STARTED
