Taxes related to inherited stock?

I am very sorry for your loss. I can't answer the state issue, but the federal is easy for you. Your basis is now stepped up to the value on the date of passing. (As you indicated no interest in the 6 mo alternative)

Part of the benefit of the step-up on one's passing is that there is no need to track down the original basis. As you surmised, 706 isn't needed.

Your basis is the market value on the date of death. Your holding period is long-term.

No. Your son's final income tax returns reflect activity up until the date of death.

Not relevant given the above answer.

True assuming the total estate was under $5,120,000.

Thanks, Alan and JoeTaxpayer. I'm pleasantly surprised that Uncle Sam forfeits its "pound of flesh". Count me happy to be part of the "99%" .

And thanks, Alan, for reminding me that the holding period is long-term.

Just remember that the step up can actually be a step down in basis.

Why should that matter to me?

Suppose my son bought stock at a cost of $1000 in a taxable account. The market value is $800 on the date that he dies, 3 months later. I inherit and sell the stock for $900 two months later.

Alternatively, suppose my son bought the stock at $700. All other facts remain the same.

As I understand it, in both cases, my basis is $800, my capital gain is $100, and it is considered long-term gain despite the fact that the stock had been held for less than 12 months by my son and by me separately and even combined.

Moreover, as I understand it, there is no capital loss (first case) or gain (second case) to report on my son's Form 1040 of the year that he died.

(We do not have to file a Form 706 for my son. But if we did, would we have to report the loss or gain there due to the difference in step-up or step-down? I don't remember.)

Some people react strongly to learn that if the decedant had sold it before death, he could have had a loss on his tax return.

Not until it is sold.