How Is The Tax Handled On This Transaction?

[jamesbishop911]

A relative recently died and left me some stock. How is the tax handled on this transaction? Do I pay the tax when I sell it? Her basis in the stock was very low.

[makaylagardner6]

When you inherited the stock, you received what is commonly referred to as a stepped-up cost basis. That means your relative's low basis in the stock is forgotten, and instead, your new basis is the stock's value on the date of death.

Technically, your cost basis is the average of the stock's high and low trading prices on the date of death, not the stock's closing price. If your relative died on a weekend or holiday, then a weighted average of the two nearest open market trading days is used to determine your cost basis. For instance, if your relative died on a Saturday, the average of the high and low trading price on Friday is multiplied by two-thirds, and the Monday high and low average is multiplied by one-third. The two resulting numbers are added together to arrive at the new cost basis.

[buildersmate]

Intringuing that a new punter shows up with a very technical question to be answered some 20 minutes later by someone on only her second shout.

Still the answer seems fair enough. The bit you forgot was to mention that CGT (if payable once any annual allowances are taken) is due on the gain - that is the difference the stock is sold at, less the 'acquiring cost' so eloquently described by the above.

[Bazile]

//Intringuing that a new punter shows up with a very technical question to be answered some 20 minutes later by someone on only her second shout. //

It is intruiging buildersmate - but why - there is no company/names quoted .
I dont understand the reason for the post and answer ( if it is not from two totally unknown to each other people )

[Barmaid]

Are we talking IHT or CGT? Are we talking government stock? is this a UK question?

I've been involved in administering estates for over 20 years and I have never heard of the first answer given.

[buildersmate]

Barmaid (and others)

These two punters appear to be playing sort of silly game in that they are answering each other’s obscure and deeply technical questions.

I'd vaguely heard of stepped-up, but it is USA terminology - explained here (if you are remotely interested).
http://www.investopedia.com/terms/s/stepupinbasis.asp#axzz2GwIF7IR9

However jamesbishop has now taken it upon himself to answer makay's question - this one.

http://www.theanswerbank.co.uk/Business-and-Finance/Personal-Finance/Question1203448.html

Perhaps we should just let them get on with it.

[factor-fiction]

http://www.theanswerbank.co.uk/Business-and-Finance/Personal-Finance/Question1203448.html#answer-7607250

[factor-fiction]

Hi buildersmate- they have asked and answered each other's questions before.
eg here's the question about safe storage
http://community.lawyers.com/forums/p/128002/646172.aspx

It seems they are a couple who work in Estate Planning in Australia.
Odd, but harmless it seems

[Peter Pedant]

I thought this answer was OK actually - a more complicated version of 'you buy a newspaper on the day of death and use the stock quotations in that.'

I hadnt lost sleep over the week end calculation
but we would call that an amortisation wouldnt we
( anyone with O level math calls it a linear approximation)

I did wonder about - her basis was very low

but I have just read or re-read Desktops latest pensees
and thought how this one was a proper question

I agree IHT and CGT is confused
but hell no one is paying for this advice.....