We recently inherited a stock portfolio, which we asked the estate attorney to sell and send us the money. I have tried to read up on how this will be taxed, but I am just confusing myself even more. The amount will be approximately $20,000. I am reasonably sure that we will not have any capital gains tax due to step up in basis, nor inheritance tax, but I don't know about any other taxes that might be due. We own a small business and the bulk of the money will be used to increase the size of our business. We are considered low income, and even with the inheritance, our 2007 income will likely not reach $50,000. Do I have to worry about a large tax debt on the inheritance when we file our federal and state returns for this year?

There may be deferred capital gains on the basis cost of the stock. (For example, I saw many people inherit telephone stock after the AT&T split into the Baby Bells from grandma who had held old ATT for decades; and of course, the baby bells after the split) Taxes owed were very high. It is selling stock that causes a taxable event. Those who inherit can keep the stock to avoid a tax penalty.

I am not a lawyer; I have not followed changes in the US Tax Code for many years.

I wish you good luck!

Any capital asset (including stocks) has its basis stepped up to its fair market value as of the day the original owner dies.

Therefore, unless the stocks dramatically increased in price between the day the original owner died and the date of sale, the capital gains tax (which is long-term regardless of when the stock was originally bought) will probably be rather small.

There may even be a capital loss if the stock was sold during the recent dip in the market.

There are no other taxes due!