Basis of Inherited Shares
Date-of-death value, the alternate valuation date, and always long-term.
Shares you inherit generally get a basis equal to their fair market value on the date of the owner's death (IRC § 1014). This is often called a "step-up," though it can also be a step-down if the shares lost value. Gains that built up during the owner's lifetime are never taxed as capital gains.
- If the estate elected the alternate valuation date on an estate tax return, basis is the value six months after death (or the value on the date sold or distributed, if earlier).
- Inherited property is treated as held long-term, regardless of how soon you sell it.
- If the estate had to file an estate tax return, you may receive Form 8971 Schedule A, and your basis generally must be consistent with the value reported there.
Example: a step-up
Your father bought 500 shares for $5,000. On the date of his death they were worth $50,000. Your basis is $50,000.
Sell two months later for $52,000: $2,000 long-term gain.
Sell for $48,000: $2,000 long-term loss.
The $45,000 of growth during his lifetime is not taxed to you.
Example: per-share value on the date of death
For publicly traded stock, fair market value is generally the average of the high and low trading prices on the date of death. If the high was $101 and the low was $99, the value is $100 per share. 200 shares = $20,000 basis.
Jointly owned shares
If you owned shares jointly with someone who died, only the decedent's portion generally gets a new basis. For spouses holding as joint tenants, that is usually half (Pub. 551 and Pub. 559).
Check the 1099-B
Brokers often re-basis inherited shares when they are moved into an estate or heir's account, but the value used may be missing or wrong. You are responsible for reporting the correct basis on Form 8949.
Frequently asked questions
Do inherited retirement accounts get a step-up?
No. Traditional IRAs and 401(k) plans are taxed as income when withdrawn; the date-of-death basis rule applies to assets like stocks, funds and real estate held outside retirement accounts.
What if I received the shares as a gift from someone shortly before they died?
Special rules can apply. Under IRC § 1014(e), appreciated property gifted to a decedent within one year of death that passes back to the donor (or the donor's spouse) does not get a step-up.
Sources
- 26 U.S.C. § 1014: Basis of property acquired from a decedent
- IRS Publication 551: Basis of Assets
- IRS Publication 559: Survivors, Executors, and Administrators
- IRS: About Form 8971 (basis consistency for inherited property)
- IRS Publication 550: Investment Income and Expenses (basis of investment property, wash sales, nondividend distributions)
Last reviewed: November 2026