cost basis on inherited stocks

[akushner23]

Hello, Everyone. Thanks in advance for your help.

I have inherited stocks from a relative who passed away in 2010. The executor of the will opted to pass on the original owner's cost basis on the stocks. From what I understand, in 2010 this was an option. After the estate was settled and the stocks were transferred, I received paperwork from the estate regarding the cost basis and this cost basis info was passed onto my broker. However, some of the cost basis info that was given to me makes no sense - for instance some of the numbers would only make sense if the purchase prices were not adjusted for splits.

I'm a little afraid to sell some of these stocks and provide cost basis info that to me seems incorrect (and works in my favor), even though it was provided by the estate, signed off by the estates lawyers, etc..

I should mention that a very large part of the inheritance was in the stocks of 2 - 3 individual companies, and I am thinking about selling these stocks to purchase index funds. Also, these stocks were owned by my relative for a very long time (perhaps he even inherited some), and dividends were reinvested, so figuring out the cost basis is a bit tricky.

Any thoughts or advice?

[quantAndHold]

The cost basis on inherited stock resets to the price on the date of death of the owner. Is this some sort of weird situation where that’s not the case?

[livesoft]

I haven't read it, but https://www.irs.gov/pub/irs-prior/p4895--2011.pdf looks pertinent. Have you read it carefully?

@quantAndHold, yes this is some sort of weird situation, please read the link.

[CppCoder]

I found this article that might be of help:

http://www.costbasis.com/stocks/iinheritedit.html

Evidently, the rules in 2010 were special, especially where estate taxes were owed. From my quick scan of the article, it seems like you need to go with the executor's values because of how he or she may have computed your basis. livesoft's link to the IRS's is more definitive but possibly less direct (don't know, didn't read it). In the end, if you have doubts, I'd suggest talking to an estate attorney.

[Gill]

You are not looking at the decedent’s actual purchase cost but rather an aggregate increase in basis as the result of an election made by the executor. Quite likely it is correct. This was a unique situation in 2010.
Gill

[Gill]

The cost basis on inherited stock resets to the price on the date of death of the owner. Is this some sort of weird situation where that’s not the case?

Yes, it is. See comments above.
Gill

[quantAndHold]

I haven't read it, but https://www.irs.gov/pub/irs-prior/p4895--2011.pdf looks pertinent. Have you read it carefully?

@quantAndHold, yes this is some sort of weird situation, please read the link.

Oh, good lord.

Never mind...

[celia]

If I recall correctly, 2010 was the year that a decedent could pass all of her estate to heirs without any estate tax. The $5.4M exemption didn't apply.

Although there wasn't any estate tax due (potentionally leaving more for heirs), it appears the heirs would still owe tax on capital gains.
Since the estate tax laws lapsed for that year, a stepped-up basis might not have been available. (This is just my guess, while I attempt to explain why 2010 was different than other years.)

[Gill]

If I recall correctly, 2010 was the year that a decedent could pass all of her estate to heirs without any estate tax. The $5.4M exemption didn't apply.

Although there wasn't any estate tax due (potentionally leaving more for heirs), it appears the heirs would still owe tax on capital gains.
Since the estate tax laws lapsed for that year, a stepped-up basis might not have been available. (This is just my guess, while I attempt to explain why 2010 was different than other years.)

Yes, it was available, but only to a limited extent. See links above.
Gill

[Gill]

I haven't read it, but https://www.irs.gov/pub/irs-prior/p4895--2011.pdf looks pertinent. Have you read it carefully?

@quantAndHold, yes this is some sort of weird situation, please read the link.

Oh, good lord.

Never mind...

Huh?

[akushner23]

Thanks everyone for your thoughts and research. So it seems like the rules in 2010 were special and the person who settled the estate probably adjusted the cost basis of the stocks and this is why they seem odd to me.

I have been told by the estate's executor that the cost for my GE shares are something like $95/share, which gives me a huge capital loss. I've been a bit skeptical to sell that stock thinking that someone made a mistake somewhere and I could end up paying the price when I sell this and file my taxes.