How Inherited Investment Accounts are Taxed

If you received an inheritance in the form of an investment account you will have what is called "step up in basis"
Alright, what does that mean? Well first of all let’s define what is called cost basis.
Cost basis is simply what the original value or purchase price of the investment.
For example let’s say you inherited an investment account from your mother and it’s worth $100,000 on the day she passed. But years ago, let’s say, she invested $20,000 into this account. And let’s also assume throughout the years she never sold any of it and just let it sit and grow.
So at this point she would have an $80,000 gain before she passed and if she sold it before she passed she would pay a capital gains tax on that gain.
But unfortunately she passed away and now this account is yours. Do you now have to pay that capital gains tax on the $80,000 gain? No. This is where that step up in basis comes in.
Under current tax law the cost basis is stepped up to the value at date of death, in this example the $100,000. So if you as the new owner sold it when it was worth $100,000, theoretically, there would be no gain and no capital gains tax to you.
It is important to note that inherited accounts will be treated as a long term capital gain/loss when you sell it, no matter how long you have had it.
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