How is the cost basis calculated for income tax purposes on worthless stock that is inherited?
When you inherit property, the tax basis is the fair market value on the date of death of the person who bequeathed it to you. If the person had bought the stock for $50 per share and it was only $10 per share on his date of death, the "stepped down" basis would be $10; you cannot take advantage of the unrealized $40 per share loss.
At the same time, had the asset appreciated from $50 to $75 per share, then you would not have to pay income taxes on the deceased's unrealized $25 per share gain. Once you sell the shares, you will have a capital gain or loss based on the fair market value on the deceased's date of death.
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