How do I check the cost basis of inherited stock?

For ordinary stock inherited into a taxable account, U.S. federal tax basis is generally the fair market value at the owner's death or an applicable estate valuation, rather than what the owner originally paid. Verify the actual basis and valuation date with the estate's records before calculating a sale gain. “Stepped up” is a description of some outcomes, not a rule that basis always rises.

The useful first question is where the basis figure came from. A broker's current market value, the amount transferred into your account and the deceased owner's purchase cost can all be different numbers.

Identify what you actually inherited

Establish the owner, the security, share quantity, account type and the portion actually inherited. Keep the estate or transfer records that explain how the property reached you.

This guide's examples use ordinary shares fully inherited into a taxable brokerage account. Do not apply their arithmetic automatically to an inherited retirement account, a lifetime gift, a trust distribution or a partly inherited joint holding. Have the relevant adviser identify the applicable rules for those actual facts.

The IRS inheritance-sale FAQ describes date-of-death fair market value as a general basis rule and an alternate estate valuation when the executor makes the applicable election. It directs recipients to the executor for valuation information.

Ask which rule applies before choosing a convenient date. The day the shares arrive in your brokerage account is not automatically the date that supplies their inherited tax basis.

Request the valuation and its support

Obtain the estate's relevant basis information, valuation date, quantity and supporting calculation. Ask how the valuation was determined and whether an election or later correction affects it.

If an estate document summarizes a larger holding than you received, ask for the allocation connecting that total to your lot. A correct estate-wide value can still be the wrong number for one beneficiary's smaller holding. Keep the quantity, per-share figure and total together.

Do not assume a single closing quote you found online reproduces the appropriate estate valuation method. Nor should a temporary value on a transfer document be promoted into a final basis figure without checking its purpose.

The IRS FAQ discusses consistent estate-value reporting for certain inherited property, including information provided on Schedule A to Form 8971. If you receive that document, have its relevance checked before reporting a different basis.

Keep unanswered points specific: wrong share quantity, unexplained valuation date, an estate figure that differs from the broker's or an applicable document still pending. Missing evidence is something to obtain, not permission to enter whichever basis produces the smallest gain.

One original lot with a confirmed inherited basis

Consider a wholly fictional beneficiary who inherits all 100 ordinary shares in one lot. The deceased owner had paid a complete $2,000 for them. For this teaching example, the correct applicable inherited valuation has been established at $50 a share, giving $5,000 federal basis.

That basis is supplied as correct for this limited case. There is no alternate valuation election, relevant gift-back exception, trust-distribution complication, partial joint interest or other basis adjustment. There are no stock splits, dividends, reinvestments or later purchases.

The shares might be worth $6,000 when they later arrive in the beneficiary's account. That transfer-date market value is not substituted for the already established $5,000 basis. The $1,000 difference is a change in quoted value, not a new purchase payment by the beneficiary.

Keeping all three figures prevents a common confusion: $2,000 is the previous owner's supplied cost, $5,000 is the beneficiary's basis under this case's rule, and $6,000 is a later market-value snapshot.

None is cash from a completed sale. Authority to hold or sell the shares and the decision whether to sell remain separate questions.

Calculate a whole sale with its charge

In one original sale branch, the beneficiary sells all 100 shares at $70 each. Gross proceeds are $7,000. A complete $20 selling commission leaves $6,980 net proceeds.

Subtract the established $5,000 basis and the modeled gain is $1,980. There are no other sale adjustments or transaction charges. This is a gain calculation, not the amount of tax owed.

Subtracting the deceased owner's $2,000 cost would instead produce $4,980, overstating the gain by $3,000 under these supplied facts. Using the later $6,000 market snapshot would produce $980, understating the gain by $1,000.

The IRS investment-income publication explains reporting sale proceeds, selling expenses and corrections when a broker's basis information is missing or incorrect. Check whether the reported proceeds already reflect the selling charge so it is not deducted twice.

Here, $6,980 already contains the $20 deduction. Subtracting that fee again before applying basis would give a wrong $1,960 gain. Preserve the trade confirmation and reporting record so the same charge is handled once.

A partial sale uses only part of the basis

Return to the original 100-share inherited lot and its $5,000 basis. In a separate branch, only forty shares are sold at $70 each. A complete $10 sale charge leaves $2,790 from $2,800 gross proceeds.

Every share in this specified lot has the same $50 basis. The forty shares sold therefore carry $2,000 basis, producing $790 gain: $2,790 less $2,000.

The sixty unsold shares retain $3,000 basis. Basis used on the sale plus basis still attached to the remaining shares equals the original $5,000.

Subtracting the entire $5,000 from the forty-share proceeds would wrongly use basis still belonging to the sixty shares held. Conversely, forgetting the $2,000 used would leave the full basis available to be deducted again on a later sale.

The full-sale and partial-sale branches are alternatives. No one has sold 140 shares from a 100-share inheritance, and the $1,980 and $790 gains must not be added as though both transactions occurred.

The basis can move down too

Now change the inherited valuation in an entirely separate example. Keep the deceased owner's $2,000 cost and 100-share quantity, but supply a correct applicable inherited basis of $1,500, or $15 a share.

If all 100 shares later sell for $18 each, gross proceeds are $1,800. After a complete $20 selling charge, net proceeds are $1,780. The gain against the supplied $1,500 basis is $280.

Using the previous owner's $2,000 would instead suggest a $220 loss. That is not the result under the stated inherited basis. The general fair-market-value method can reset a basis downward as well as upward.

These amounts are not market quotes, estate appraisals or a strategy for producing a particular tax outcome. They show why the phrase step-up should not replace the actual applicable valuation.

Recognize an exception without improvising its answer

IRS Publication 551 describes inherited-property basis, consistent estate reporting and exceptions. For example, it discusses appreciated property given to the deceased person by the recipient or their spouse within the preceding year and then received back.

If your facts involve a recent gift, joint ownership, a trust or another special arrangement, tell the adviser before relying on the ordinary inherited-stock example. A document saying inheritance does not by itself establish that every asset and ownership interest receives identical treatment.

An alternate estate valuation also is not a menu of dates for a beneficiary to choose after seeing later prices. Obtain the estate's actual election information and applicable value through the proper process.

Keep federal basis, state treatment, estate administration and the sale's tax reporting as separate questions where they require separate answers. Resolving the first figure does not complete every obligation arising from the inheritance.

Reconcile the broker's record with the estate record

Compare the security and quantity first, then the displayed acquisition information and basis. Ask what an empty, unavailable or unreported basis field means in that institution's actual record.

A blank field is not evidence that your basis is zero. Equally, a number appearing on a screen is not proof that the estate's required information has been incorporated correctly.

If the account contains shares of the same company from purchases or employment compensation as well as inheritance, keep their acquisition records distinguishable. The employee stock purchase guide addresses a different source of shares and its reporting questions.

Send the relevant supporting information through the institution's authorized process and retain the request, response and any corrected record. Do not alter a source statement to make it look as though the broker originally reported your preferred number.

If a sale has already been reported, have the appropriate preparer review the actual return requirements and any correction needed. Publication 550's instructions distinguish missing or incorrect broker basis from blindly accepting the displayed amount.

Keep a lot record that survives the first sale

A useful lot record connects the source of the shares, quantity inherited, valuation date, applicable basis, supporting estate documents and later adjustments. Each sale adds its quantity, proceeds, charges and basis used.

After a partial sale, reconcile the remaining quantity and basis rather than carrying forward the old total unchanged. If the account moves institutions, retain the supporting records instead of assuming every necessary historical fact will arrive automatically.

Limit sensitive document sharing to what the institution or adviser actually needs through a verified channel. The family financial-file guide helps make documents findable while distinguishing information from authority to act.

Finally, keep sale proceeds and taxable gain separate in your spending plan. Receiving $6,980 in the first branch does not make $6,980 the gain, and calculating a $1,980 gain does not establish the final tax bill or make every dollar of proceeds freely available.