Series 7 practice questionmediumTax Implications — Gift and Estate Tax
When securities are inherited from a deceased person, the beneficiary's cost basis is:
- AThe decedent's original purchase price
- BThe fair market value on the date of the decedent's death (stepped-up basis)✓ Correct answer
- CZero
- DThe average of the purchase price and death date value
Explanation
Why B — The fair market value on the date of the decedent's death (stepped-up basis)
Inherited securities receive a stepped-up basis to the fair market value on the date of the decedent's death (or the alternate valuation date, if elected). This eliminates all unrealized capital gains that accrued during the decedent's lifetime. Additionally, inherited property is always considered long-term regardless of how long the decedent or beneficiary held it.
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