We inherited an investment account & sold off part - how do we handle that for tax purposes?

Question

When I instructed the sale to occur, I requested that they withhold 25% for Federal taxes. I know that I will probably have to pay State taxes, but that's not a big deal. How do I calculate my tax basis?

Answer 1

You have a sale of capital assets and will use Schedule D.

The basis of the asset is the market value of the asset when you inherited the asset. All inherited assets are considered long-term for purposes of capital gains or losses. For the date of purchase, put the letters INHERIT in the date. Then put in the date of sale.

If you have a gain on the sale, the maximum tax you will pay will be on the gain only, since the value of the inherited asset is tax-free to you. The tax is a maximum of 15%.

Since you have witheld 25%, you will owe no additional tax on the sale.

Answer 2

When you inherited the account you got a step up in basis to the value at the date of death.

That means if you sold it right away you would have no gain or loss.

Based on the value at the date of death only of the shares you sold you subtract out the sales price and the difference you take as a gain or loss. 25% withholding is extremely high.

Usually there is a statement each month for the account and you can lookup the value from there. Otherwise look up the share price on yahoo or other finance site as of the date of death of the person you inherited the account from.

Answer 3

The stepped up cost basis answers above are correct. If the account was actually assets of a probate estate or a trust then the sales go on Schedule D of a Form 1041. A Schedule K-1 is then given to each beneficiary for their 1040 reporting.

Answer 4

You are likely to get a huge refund.

If this is in excess of $10,000 expect to wait a long time for your refund.

As noted above, it's not all profit! In fact, if you held these assets for a relatively short time, you probably had very little taxable gain!
Inheritances themselves are not taxed to the recipient>

Tax Advisor

Answer 5

In order to pay the least taxes I would consult my accountant. Eash state has a different percentage to deduct.

Answer 6

usually there is no tax on an inhertance at least upto a fairly large amount something like $200,000 the only tax would be based upon any profit the investment made while you held it

Answer 7

you shouldnt have done that!!! you could have deferred your taxes and not paid a thing.