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Series 7 practice questionmediumTax Implications — Gift and Estate Tax

A father purchased stock at $30 per share. He dies when the stock is worth $80. His daughter inherits the stock and sells it at $90. What is her taxable gain per share?

  1. A$60
  2. B$10✓ Correct answer
  3. C$50
  4. D$90
Explanation

Why B — $10

Inherited securities receive a stepped-up basis to the fair market value on the date of death: $80 per share. The daughter's gain is $90 - $80 = $10 per share. The $50 of appreciation during the father's lifetime ($80 - $30) escapes income taxation entirely due to the step-up in basis. The gain is treated as long-term regardless of how long the daughter held the stock.

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