Capital gains question;
My parents bought stock at $100,000 and now it has increased to $150,000 for an increase of $50,000. If they leave the entire $150K to me in their Will, how is the capital gains figured. Is it paid for by the Estate before money is disbursed? What if I don’t want to cash the stock in, can I pay the gains when I do sell it? Do I even need to pay capital gains since I will pay inheritance tax anyhow? Help
Jouneyman

ebaines

When property passes through an estate to the heirs, the tax basis automatically "steps up" to the market value on the date of death (or sometimes to the value 6 minths after death, if the executor so chooses, which for large estates may be advantageous for tax purposes). In this case if you were to inherit the stock today, the capital gains tax you would owe when you sell it sometime later would be calculated using the $150K basis.

nietz001

If this is the case, and I would pay Capital gains on 150K wouldn't it be smarter to have my parents sell the stock now, pay the capital gains on 50K and gift away the 12K per year as permitted until nothing is left? This would also avoid inheritance tax and reduce the value of their estate to avoid estate tax, not to mention avoiding probate. If they need the money I could just gift it back to them. Is there a flaw in this reasoning?

AtlantaTaxExpert

No, it is better to leave you the stock, because they would pay capital gains tax on $50K, whereas your capital gains tax would be paid on a figure that is probably a LOT lower, say $10K.

Further, there is NO federal estate or state inheritance tax issues if $150K is the only amount involved, because the first $2 MILLION dollars of any estate is exempt from estate or inheritance taxes.