Inherited Stock

[bill18163]

What is the name of your state?What is the name of your state?Pennsylvania.
My wife inherited stock from her brothers 401k. Will she be able to assume his basis in the stock(which is very low) or does she have to use the price of the stock on the date of his death as her basis? We have been getting conflicting answers on this question.

[Dandy Don]

Ask your local IRS office about this or consult with a local CPA or tax accountant.

[bill18163]

Dandy Don,
My state is Pennsylvania. We have spoken to our CPA on this question and he says my wife can assume her brothers basis in the stock. Two other CPA's for my wife's sister(who is also receiving stock) tell her she can't do it. I probably will take your advice and go to the local IRS office and ask the question. General Electric Company says in their paper work to the beneficiaries that they may be able to do this but they will not answer any questions. They just tell you to seek advice from a tax professional. Can't figure out why these CPA's come up with different answers!

[Snipes5]

The basis of inherited stock is the fair market value on the date of death.

The time period is designated as long term.

Snipes

[abezon]

The reason you're getting different answers is that the stock is held in a 401k. Stocks held in an investment account get a step up in basis to fair market value on the date of death. Retirement plans do not get a basis step up. I believe she will have to take her brother's basis & recover costs as he would have recovered them. However, check Pub 575 for more info, as certain types of retirement plans can get a basis step up.
[url]http://www.irs.gov/pub/irs-pdf/p575.pdf[/url]

[bill18163]

Abezon,
What do you mean when you say "she will have to take her brother's basis & recover costs as he would have recovered them".
If she used her brothers basis which is very low(less than $2/share) wouldn't that allow her to have a capital gain advantage when she sells the stock and pay taxes at the lower capital gains rate?

[abezon]

Look, if an asset is held in a 401k plan, there is no basis step up and the withdrawals from the plan are taxed as ordinary income, regardless of whether the assets are stocks or cash. OTOH, if you inherit stocks directly, you get a step up in basis and the gain from sale is taxed as capital gains. I cannot tell you which type of income you'll have because you keep giving conflicting answers as to how the stocks are held. You need to talk to the plan administrator and ask him/her about how the distributions will be taxed.