When I inherit stocks, the step up basis is used...but?

Question

the stock at death was valued $100, what if when I receive the stock is only worth $50. Can the loss be tax deductible?

Answer 1

You can only get a loss when you sell the stock or when it is deemed worthless. Your basis in the stock would be the $100, unless alternative valuation was used (that's something you need to find out). While the stock is only worth $50 when you receive it, that is an "unrealized" loss, which is not deductible. You will get the loss if/when you sell it.

Answer 2

If the stock was valued at $100 when you inherited it, then $100 is your cost basis. If the stock is worth only $50 when you receive it, you have a paper loss of $50. You cannot claim the loss for tax purposes however, unless you sell the stock. If you sell the stock later for $60 you will claim a capital loss of $40. If you hold the stock, it may go back up and you may even sell it at a gain. Or it may keep going down. Whatever happens, your cost basis remain $100 until you sell the stock.

Answer 3

The value of inherited stock is generally the FMV on the date of death of the giver. With the exception of dividends there is no tax consequences until the stock is sold. At that time the basis would be $100 (with a few rare exceptions and any applicable adjustments). The stocks value at any other time makes no difference at all.

Answer 4

At the time of sale is when you determine your loss or gain. On the Sch D for date of purchase you enter INH and the basis at that point in time.