Stock Inheritance Questions

[tenders]

You should talk to an advisor about this. It is possible that the cost basis on the shares was reset to the price on the day you got them, so little capital gains tax would be due.

[Paul F.]

tenders wrote:
You should talk to an advisor about this. It is possible that the cost basis on the shares was reset to the price on the day you got them, so little capital gains tax would be due.

Still better to NOT sell them if not necessary... and it's not to transfer the holdings to your brokerage.

[mrlynn]

tenders wrote:
You should talk to an advisor about this. It is possible that the cost basis on the shares was reset to the price on the day you got them, so little capital gains tax would be due.

Yes, if you have a financial advisor/broker, he will be able to consolidate all these disparate stocks in one brokerage account, and can advise you on the tax consequences, if any. I think, with tenders, that the cost basis will be reset, but it may be there would have been cap gains due on the inheritance—that may take a CPA to figure out.

/Mr Lynn

[Wailer]

tenders wrote:
You should talk to an advisor about this. It is possible that the cost basis on the shares was reset to the price on the day you got them, so little capital gains tax would be due.

You will definitely owe no capital gains taxes on it. The basis is stepped-up at her death, so can sell it tax free.

It's one of the great tax-avoidance schemes still available to anyone who is disciplined enough to never sell their stock. If this had been held in an IRA or similar qualified plan, you'd owe ordinary income taxes on the full amount.

[ztirffritz]

If anyone is still interested, I called Vanguard and they walked me through the transfer process. Easy as could be. They filled out the forms for me. I print them, get a guaranteed signature on them and send them back to Vanguard. Case closed. I hope.

[Wailer]

That's good. Sorry to hear about your aunt.

If you don't sell, make sure to keep track of the value of the inheritance on her date of death. That is your new basis. If you don't sell now and sell later for more, you'll be subject to capital gains taxes on the difference between the sales price and the basis. If you hold for a year or less, you'll pay short-term cap gains taxes (your marginal tax rate). If you hold for more than a year, you'll pay the capital gains tax rate (could be 0%, 15%, 20% or 23.8% depending on your income). If it goes down in value, you can deduct the loss from your ordinary income (up to $3k/yr). It's a great way to arbitrage tax rates that very few people take advantage of.

What would she want you to do with the money?

[ztirffritz]

I don't plan to sell any of the stock. I intend to take the dividends from some of them and make an extra house payment each year. I won't be retiring any time soon. If I'd thought ahead to knock off my brother and two cousins I might have had a bit more to work with.

[mrlynn]

Wailer wrote:
That's good. Sorry to hear about your aunt.

If you don't sell, make sure to keep track of the value of the inheritance on her date of death. That is your new basis. If you don't sell now and sell later for more, you'll be subject to capital gains taxes on the difference between the sales price and the basis. . .

Note that if these were shares in a mutual fund(s), and you reallocated from time to time, thereby effectively selling and buying stocks, after a while keeping track of bases can get really complicated.

I gather that these are individual company stocks, so that's not an issue unless you do sell.

/Mr Lynn

[Wailer]

mrlynn wrote:

Note that if these were shares in a mutual fund(s), and you reallocated from time to time, thereby effectively selling and buying stocks, after a while keeping track of bases can get really complicated.

I gather that these are individual company stocks, so that's not an issue unless you do sell.

Very true. I'm not a fan of mutual funds for long-term, taxable investing especially if you reinvest dividends. It can get very messy unless you plan on leaving them as an inheritance to your kids in which case they'll get a similar step-up in a basis with no headache. If they are mutual funds and you want to hold them long term, I'd almost recommend to take the dividends and capital gains as cash. You have to report and pay tax every year in either case, but if you take them every year, you'll have less trouble remembering your basis when it does come time to sell. Another thing, if you are in the 15% federal tax bracket, your dividends and capital gains are federally tax-free.

I think you mentioned vanguard, so those are pretty good and probably worth staying with. If they aren't vanguard, you can PM me the funds and I can tell you want I think of them or suggest alternatives.

For long-term taxable accounts, I love individual stocks. You gets lots of opportunities for tax-loss harvesting and you pay no management fees.

[Frank]

Wailer wrote:
[quote=mrlynn]

Note that if these were shares in a mutual fund(s), and you reallocated from time to time, thereby effectively selling and buying stocks, after a while keeping track of bases can get really complicated.

I gather that these are individual company stocks, so that's not an issue unless you do sell.

...
For long-term taxable accounts, I love individual stocks. You gets lots of opportunities for tax-loss harvesting and you pay no management fees.
Individual stocks are the way to go if you have enough money to buy a "basket" of them. Diversification is very important. That's the advantage of mutual funds. You get the same ability for tax-loss harvesting. Vanguard has very low management fees.