Question

A customer is selling inherited stock. The decedent originally paid $50 per share and on the date of the decedent's death, the stock was worth $60 per share. On the day the customer sells the stock, the price per share is $62. What is the investor's cost basis in the stock?

Answer 1

The answer is: $60

Step-by-step explanation:

When someone inherits a stock, the IRS assigns the fair market value of the stock for tax purposes. That means the IRS applies a step-up in basis to the cost of inherited property.

The value of stock changes over time, and many times a person might hold a stock for long time. That is why if that person dies, the stock he owned can't have the same value as when it was purchased. So the IRS uses the fair market value of the stock for taxation purposes (the IRS never wants to lose money).