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Cost basis for inherited stock

When you inherit assets, like property or shares of stock in a brokerage account, you’ll have to consider tax implications if you want to sell them for reinvestment or cash. There are special rules for inherited assets to try and ease the tax burden you might face if you receive something that’s been held by your loved one for a long time.

Cost basis and capital gains tax

Cost basis is the original cost of a property or asset, including the original purchase price plus any adjustments (for example, fees or commissions). Cost basis is used to help determine how much you owe in taxes when you sell your property or asset. In general, when you inherit property or assets, you get a step-up in cost basis.

A step-up cost basis is usually going to be the fair market value (FMV) on the date of your loved one’s death.1 If the executor files an estate tax return, they could use an alternate valuation date of up to 6 months from the date of death.2

When you sell an inherited asset for more than the stepped-up cost basis, it would be counted as a long-term capital gain for tax purposes. Your long-term capital gains are taxed at the capital gains tax rate, which is significantly lower than ordinary income taxes.

If you sell the asset for less than the FMV, it would be a long-term capital loss. The tax code allows you to deduct capital losses, and you can apply up to $3,000 a year ($1,500 if married filing separately) in capital losses to reduce ordinary income. If you have more than $3,000 worth of losses, you can carry the loss forward to use in future years.3

To make sure you are taking full advantage of your inherited assets, it’s best to work with a qualified tax advisor.

Net unrealized appreciation (NUA): special rules for company stock in workplace savings plans

If you’re inheriting a workplace savings plan that has company stock, you’ll have 2 available options: roll over the company stock to an inherited IRA or put the company stock into a taxable nonretirement brokerage account. Some workplace plans may allow you to keep the company stock in an inherited workplace account for a specified length of time, until you make a decision.

When you’re deciding what to do with the company stock, you’ll want to pay attention to the NUA, because beneficiaries can take the same advantage as the original investor. NUA is the difference in value between the cost basis of company stock and its current market value when it’s distributed from a plan as part of a lump-sum withdrawal.4

For example, imagine your loved one purchased company stock in their plan for $20 per share. They bought 100 shares for $2,000. Five years later, the shares are now worth $35 each, for a total value of $3,500. This means $2,000 is the cost basis and the NUA is $1,500.

To learn more, read Make the most of company stock in your 401(k). You should also consider consulting a qualified tax advisor to learn which option makes more sense for you.

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More to explore

1. “Publication 551: Basis of Assets,” IRS, December 2022, 2. “Instructions for Form 706: United States Estate (and General-Skipping Transfer) Tax Return, Part 3—Elections by the Executor,” IRS, September 2023, 3. "Topic No. 409 Capital Gains and Losses," IRS, January 23, 2023, 4. “Make The Most of Company Stock in Your 401(k),” Fidelity Viewpoints, February 22, 2023,

This information is general in nature and provided for educational purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.