The short answer: when you inherit stock, its cost basis generally resets to its value on the date of death, so decades of gains can disappear for tax purposes. The problem is that your 1099-B may still show $0, a blank, or the original owner’s cost. If you report it as-is, you could overpay — or get a CP2000 notice.
Example (hypothetical)
- Parent’s original cost
- $10 per share
- Value on date of death
- $90 per share
- Your new basis
- $90 per share
- You sell at
- $95 per share
- Taxable gain
- about $5 per share, long-term
Without the step-up, the same sale would look like an $85 gain per share. A 1099-B that still shows the old $10 cost can make it look that way to the IRS.
And here is the detail most people get wrong: the date-of-death value isn’t the closing price.
Inherited Stock Basis Calculator
Enter your numbers to estimate your stepped-up basis, your gain or loss, and how far your 1099-B is off.
What Is the Cost Basis of Inherited Stock?
Cost basis is the number the IRS subtracts from your sale price to find your taxable gain, and for inherited stock it is generally the stock’s fair market value on the date the owner died. It is not what the person originally paid.
The rule comes from IRC § 1014 and is explained in IRS Publication 551. People call it the “step up in basis,” although basis can also go down. If you inherited a brokerage account, each position gets its own new basis, and because only growth after death is taxed, selling soon after you inherit often creates little or no capital gains tax.
A lot of wealth is about to change hands. Cerulli Associates estimates roughly $124 trillion will pass to heirs and charities through 2048, though estimates vary by method. Many of those heirs will land in the same spot: a brokerage account, a 1099-B, and a basis number they can’t trust yet.
How the Step-Up (or Step-Down) Works
Your basis becomes the stock’s value on the date of death: higher than the owner’s cost is a step-up, lower is a step-down.
The new basis applies from the day of death. Gains the owner built up before then are not taxed to you, and losses that built up before then are not deductible by you.
| Item | Amount |
|---|---|
| Original owner’s cost per share | $10 |
| Value on date of death (mean of high and low) | $90 |
| Your basis per share | $90 |
| Sale price per share | $95 |
| Taxable gain per share (long-term) | $5 |
| Gain on 100 shares | $500 |
| Gain on 100 shares if basis had stayed at $10 | $8,500 |
CHECK FIRST
The step-down. Say the owner paid $50 per share, the value at death was $30, and you sell at $28 (hypothetical). Your basis is $30, so your loss is $2 per share, and the $20 drop before death gives you nothing to deduct.
If shares you inherited later become worthless, a different set of rules applies. See Stock Delisted or Company Bankrupt?
How to Find the Date-of-Death Value
For listed stock, the value is generally the mean of the highest and lowest selling prices on the date of death — not the closing price.
- Find the date of death on the death certificate.
- Get that day’s highest and lowest selling prices for each stock.
- Add the two prices and divide by two.
- Multiply by the number of shares you sold.
Example (hypothetical)
High $91 and low $89 on the date of death: ($91 + $89) ÷ 2 = $90 per share. On 100 shares, your basis is $9,000.
If the date of death was a weekend or holiday
When there were no sales on the date of death, the regulation uses a weighted average of the mean prices on the nearest trading days before and after. The weights run opposite to distance, so the closer day counts more.
The formula is (trading days after × mean before + trading days before × mean after) ÷ (trading days before + trading days after). For a Saturday or Sunday death in an ordinary week, Friday and Monday are generally treated as equally close, which works out to a simple average of the two means. Confirm the method with whoever valued the estate.
Examples (hypothetical)
Saturday death, Friday mean $90, Monday mean $94: ($90 + $94) ÷ 2 = $92 per share.
Nearest sales 2 trading days before at $10 and 3 trading days after at $15: (3 × $10 + 2 × $15) ÷ 5 = $12.
Mutual funds are different
Open-end mutual fund shares are valued at the public redemption price, which is the net asset value (NAV), not a high-low average. ETFs trade like stocks, so the high-low method applies to them.
The alternate valuation date
An executor can choose a value six months after death, but only on Form 706 and only when it lowers both the gross estate and the estate tax (IRC § 2032). Property sold or distributed within those six months is valued as of that date, and your basis follows whichever value the estate used. Most estates fall under the 2026 federal filing threshold of $15,000,000, so the date-of-death value is the usual rule.
Where to get the numbers
- Your broker may provide a date-of-death valuation or update your cost basis lots once it receives the estate paperwork. Ask for it in writing.
- The executor may have a Form 706 or an appraisal with values already worked out.
- Historical price data from a reliable source shows each day’s high and low. Save a copy.
- In the rare case that only closing prices are published, the regulation has a separate closing-price method (§ 20.2031-2(b)(2)). Ask a professional which applies.
Your 1099-B Shows $0, Blank, or the Wrong Basis
A 1099-B is not the final word on your basis: if it’s wrong, you report the correct basis on Form 8949 and keep your proof.
Brokers report from the records they have. When shares move from a decedent’s account to an heir’s, the cost data can be missing, carried over from the original owner, or based on a different valuation.
Start with what the form actually says. Look at box 1e (cost or other basis), box 5 (noncovered security) and box 12 (basis reported to the IRS).
STEPS UP
Basis matches your date-of-death value. You’re mostly done. Make sure the date acquired and holding period are handled (see the next section) and keep your valuation records.
CHECK FIRST
Basis shows $0. If the form says basis was reported to the IRS, report the $0 as shown and adjust with code B. If it says basis was not reported, enter your correct basis directly.
CHECK FIRST
Basis is blank. A blank usually goes with a noncovered security, which means the broker didn’t report basis to the IRS. You supply the basis from your date-of-death valuation.
CHECK FIRST
Basis is the original owner’s cost. That is the carryover basis, not the new one. If it was reported to the IRS, use code B to bring it up (or down) to the date-of-death value.
Mixed lots
Only the shares you inherited get the date-of-death basis. Shares you already owned, or shares bought after the death (including dividend reinvestments), keep their own cost and holding period, so report them as separate lines.
Fix it in five steps
- Read the 1099-B and note the basis, whether it was reported to the IRS, and the holding period it shows.
- Get the date-of-death value using the steps above, or the estate’s value if a Form 706 was filed.
- Ask your broker for a corrected 1099-B or updated cost basis records. This can fix the mismatch at its source.
- Report the sale on Form 8949 with the right box, “INHERITED” as the date acquired, and code B if you’re correcting a basis reported to the IRS.
- Keep the valuation, your math and any broker correspondence with your tax records.
How to Report It on Form 8949
Report an inherited-stock sale in Part II (long-term), write INHERITED as the date acquired, and use code B if you are correcting a basis the broker reported to the IRS.
| Field | What to enter |
|---|---|
| Part | Part II (long-term), no matter how long you held the shares |
| Box | D if the 1099-B says basis was reported to the IRS; E if it was not; F if you got no 1099-B |
| (a) Description | Shares and company, matching your 1099-B |
| (b) Date acquired | INHERITED |
| (c) Date sold | The sale date |
| (d) Proceeds | The amount on your 1099-B |
| (e) Cost or other basis | Box D: the basis shown on the 1099-B. Box E or F: your correct basis |
| (f) Code | B, if you are adjusting a basis the broker reported to the IRS |
| (g) Adjustment | Correct basis higher than reported: a negative number in parentheses. Lower: a positive number |
| (h) Gain or loss | Proceeds minus basis, combined with the adjustment |
Example (hypothetical)
You sold 100 shares for $9,500. The 1099-B reports $0 basis to the IRS, but the date-of-death value is $9,000. Enter $9,500 in (d), $0 in (e), B in (f) and ($9,000) in (g). Gain in (h): $9,500 − $0 − $9,000 = $500.
Form 8949 totals flow to Schedule D. Long-term gains are generally taxed at lower rates than ordinary income; the current brackets are in our Capital Gains Tax 2026 guide.
Can a Wrong Basis Trigger a CP2000?
Yes: if the basis on your return doesn’t match what the broker reported and nothing explains the difference, the IRS can send a CP2000, which proposes changes to your return but is not a bill.
A CP2000 over a 1099-B cost basis often starts with a $0 or blank basis, which can turn into a proposed gain on the full sale price, far larger than your real gain. Writing INHERITED on Form 8949 and using code B when needed shows the IRS why your numbers differ from the form.
If you get a CP2000
- Read the whole notice and reply by the date listed on it.
- Compare the proposed gain with your records and your date-of-death value.
- If you disagree, mark that on the response form, sign it, and attach a clear explanation.
- Include proof: the valuation, a copy of your Form 8949, and any estate paperwork.
- If the broker’s information is what’s wrong, ask the broker for a correction or a supporting statement.
For a full walk-through of a basis mismatch, see IRS Says You Owe Tax on Your Entire Stock Sale?
Gift or Inheritance? Why It Matters
Stock given to you while the owner was alive generally keeps the giver’s basis, so there is no date-of-death step-up.
STEPS UP
Passes at death. Shares that pass through a will, a revocable living trust, a beneficiary or transfer-on-death designation, or intestacy generally get the date-of-death basis.
NO STEP-UP
Lifetime gift. Your basis is the donor’s. Ask the donor or their broker for the original cost and the gift date.
CHECK FIRST
The one-year rule (IRC § 1014(e)). If appreciated property was given to a person who died within a year, and it then passes back to the donor or the donor’s spouse, there is generally no step-up. The basis stays at the decedent’s adjusted basis just before death. This is separate from the ordinary gift rule above.
Trusts matter too. Shares in an irrevocable trust funded during the owner’s life generally don’t step up unless they are included in the decedent’s gross estate, so ask the trustee how the trust was treated.
How an account was titled can raise gift questions of its own. Adding a child as a joint owner of a parent’s account can be treated partly as a gift, and the basis then depends on who contributed. Ask a CPA or estate attorney before you sell.
When a Spouse Dies: Joint Accounts and Community Property
How much of a jointly owned account gets a new basis depends on where you live: in a community property state generally all of it can, and elsewhere, between spouses, generally half.
STEPS UP
Community property states. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Generally the entire community property gets a new basis at the first spouse’s death (IRS Publication 555), which people often call the double step-up.
CHECK FIRST
Joint spouses elsewhere. Generally half of the account is included in the decedent’s estate and stepped up (IRC § 2040(b)). Your own half keeps its original basis. Different rules can apply if the surviving spouse isn’t a U.S. citizen.
Example (hypothetical)
A couple owns 100 shares jointly, bought at $20 per share, worth $90 at the first spouse’s death. In a community property state, all 100 shares get a $90 basis ($9,000). In another state, 50 shares get $90 ($4,500) and 50 keep $20 ($1,000), so the blended basis is $5,500, or $55 per share.
Two cautions. A few other states let couples opt in to community property treatment through a trust or an election, and the IRS doesn’t treat those the same way. Joint ownership with someone who isn’t a spouse, such as a sibling or a child, follows different rules based on who contributed. Ask a professional in either case.
Inherited IRAs and 401(k)s Don’t Step Up
Retirement accounts get no step-up, so what you withdraw from an inherited traditional IRA or 401(k) is generally taxed as ordinary income.
NO STEP-UP
Inherited traditional IRA or 401(k). There is no date-of-death basis to fix, and no 1099-B for stock sold inside the account. You get a Form 1099-R when you take money out. Inherited Roth accounts follow different rules, and qualified withdrawals can be tax-free.
Many non-spouse heirs must empty the account within 10 years, and annual withdrawals can be required in some cases. See IRS Publication 590-B. Don’t mix these accounts up with a taxable brokerage account, where the step-up does apply.
The Consistent-Basis Rule (Form 8971)
If the estate was required to file a federal estate tax return, your basis in the inherited property generally can’t exceed the final value reported for estate tax purposes.
This is IRC § 1014(f). The executor reports values on Form 8971 and gives you a Schedule A with the final figure. If you report a higher basis than that number, you can face accuracy-related penalties.
It rarely applies. For 2026 deaths, the IRS filing threshold is $15,000,000 (counting the gross estate plus certain lifetime taxable gifts), and most estates are below it. IRS guidance generally excludes estates that file Form 706 only to elect portability or to allocate GST exemption, and the rule only reaches property that increases estate tax. If an estate did file Form 706, ask the executor for your Schedule A. For planning context, see our Estate Planning Guide.
Inheriting Property Beyond Stocks
The step-up applies to most appreciated property you inherit, including a house or land, but not to retirement accounts, lifetime gifts, or certain income items like annuity gains.
| Asset | Steps up? | Note |
|---|---|---|
| Stocks and ETFs in a taxable account | Yes | Mean of the day’s high and low |
| Mutual funds in a taxable account | Yes | NAV on the date of death |
| House or land | Yes | Usually an appraisal |
| Lifetime gift of stock | No | Donor’s basis carries over |
| Traditional IRA or 401(k) | No | Withdrawals taxed as ordinary income |
| Gain inside an annuity | No | Generally taxed as income to the heir |
| Joint account, spouses, non-community state | Half | Decedent’s half only |
| Community property | Yes (all) | Both halves, generally |
Real estate follows the same logic, with its own complications when siblings share a house. See Inheriting a House With Siblings.
If the person you inherited from got shares through an employer plan, how they were taxed on those shares is a separate topic, covered in our RSU Cost Basis and ESPP Cost Basis guides. For shares they already owned at death, the date-of-death basis generally replaces the old one.
What to Do Before You Sell
Pin down the date-of-death value and check what your broker has on file before you sell, because that is when a mistake is cheapest to fix.
- Confirm how you received the shares: inheritance, gift, joint account or retirement account.
- Ask your broker whether the account has been updated with date-of-death basis, and request the valuation in writing.
- Check the broker’s number against the high-low method, or against the estate’s Form 706 if one was filed.
- If the estate filed Form 706, get your Schedule A (Form 8971) from the executor.
- Remember that only price movement after the date of death counts toward your gain or loss.
- Keep the valuation and your math, generally for at least three years after the return that reports the sale.
Frequently Asked Questions
Quick answers to the questions heirs ask most. Tap a question to open it.
Do you pay taxes when you sell inherited stock?
You owe capital gains tax only on the gain above your stepped-up basis, and often little or none if you sell soon after the death. Inheriting the stock isn’t federal income. Federal estate tax applies only to larger estates, and some states have their own estate or inheritance taxes.
How do I find the cost basis of inherited stock?
Take the mean of the highest and lowest selling prices on the date of death and multiply by your shares. Ask your broker or the executor for the figures, or use historical price data and save a copy.
What if the date of death was a weekend or holiday?
Use a weighted average of the mean prices on the nearest trading days before and after. For a normal weekend, that is generally a simple average of Friday’s and Monday’s means.
Is the date-of-death value the closing price?
No. The regulation uses the mean of the day’s high and low selling prices. If your broker’s number differs, keep your math and note which method you used.
My 1099-B shows $0 basis for inherited stock. What do I do?
Report the sale on Form 8949 with the correct basis. If the form says basis was reported to the IRS, enter the $0, add code B and a negative adjustment. If it wasn’t reported, enter your correct basis directly.
My 1099-B basis is blank. Is that a problem?
Usually it means the broker didn’t report basis to the IRS. You enter your own basis from the date-of-death value, and you should still have records to support it.
The broker reported the original owner’s cost. What now?
That is the carryover basis, not the inherited one. If it was reported to the IRS, use code B and adjust to the date-of-death value. Also ask the broker to update its records.
Is inherited stock always long-term, even if I sell next week?
Generally yes. Inherited property is treated as long-term no matter how long you or the decedent held it, so it goes in Part II of Form 8949.
What do I put as the date acquired on Form 8949?
Write INHERITED in column (b) instead of a date.
What is code B on Form 8949?
It tells the IRS that the basis on your Form 1099-B is incorrect. You enter the 1099-B basis in column (e) and the difference in column (g).
The 1099-B shows my sale as short-term. Can I change it?
Yes. Report the sale in Part II as long-term and use code T to show the type of gain or loss on the form is wrong.
I reinvested dividends after inheriting. How is that reported?
Shares bought after the death have their own purchase price and holding period. Only the shares you inherited get the date-of-death basis and the automatic long-term treatment, so report the two groups on separate lines.
Can the IRS send a CP2000 over inherited stock?
Yes, if the basis on your return doesn’t match the broker’s report. A CP2000 proposes changes; it isn’t a bill, and you can respond with your valuation and Form 8949.
I already filed with the wrong basis. Can I fix it?
You may be able to amend the return with Form 1040-X. The usual deadline is three years from when you filed the original return, or two years from when you paid the tax, if that is later. Check with a tax professional.
What if the stock was worth less at death than the owner paid?
Your basis steps down to the lower value. You can’t deduct the drop that happened before death.
What if I sell for less than the date-of-death value?
You have a long-term capital loss measured from the new basis. Net capital losses can offset capital gains, and generally up to $3,000 of other income per year, with the rest carried forward.
Does an inherited IRA get a step-up in basis?
No. Withdrawals from an inherited traditional IRA or 401(k) are generally ordinary income. See IRS Publication 590-B.
My parent gave me stock before they died. Does it step up?
No. A lifetime gift generally keeps the donor’s basis, with a special rule for losses.
I gave stock to my dying parent and it came back to me. Does it step up?
Generally not, if they died within a year of receiving it. IRC § 1014(e) keeps the basis at the decedent’s adjusted basis just before death.
Is a joint account with my spouse fully stepped up?
In a community property state, generally yes. Elsewhere, generally only the decedent’s half is stepped up and your half keeps its original basis.
Is a transfer-on-death account stepped up?
Generally yes. The shares are part of the decedent’s estate for tax purposes and pass to you at death, so they get the date-of-death basis.
What if the estate sold the stock instead of me?
Then the sale is generally reported on the estate’s income tax return, using the date-of-death basis. If the shares were distributed to you first, your own sale is reported on your return as described above.
What is the alternate valuation date?
It is six months after death, and an executor can choose it only on Form 706 and only if it lowers both the gross estate and the estate tax. Property sold or distributed in that window is valued as of that date.
Do I need to worry about Form 8971?
Only if the estate was required to file Form 706. In that case your basis can’t exceed the final estate-tax value on your Schedule A.
Do I need an appraisal for publicly traded stock?
Usually not. Public price data is enough for listed stock. Appraisals matter for closely held businesses and real estate.
Sources
- IRS Publication 551, Basis of Assets
- IRS Instructions for Form 8949
- IRS Instructions for Form 706 and Treas. Reg. § 20.2031-2
- IRS Publication 555, Community Property and Publication 590-B
- IRS Instructions for Form 8971
- IRS, Understanding your CP2000 notice
- IRS, Frequently asked questions on estate taxes
- NBC News report on Cerulli Associates’ wealth-transfer estimate
Disclaimer: This article is educational only and is not tax, legal or investment advice. All examples are hypothetical. Basis rules depend on your facts and on the estate’s, so confirm your numbers and reporting with a CPA or estate attorney.
Daniel Hayes is the founder and sole researcher at AdvoraHQ. He covers U.S. personal finance, insurance, and consumer law — working directly from IRS publications, federal and state statutes, court opinions, and SEC filings rather than secondary summaries. His focus is the gap between what readers think they know and what the source documents actually say. Daniel is not a licensed attorney, CPA, or financial advisor; his articles are educational and not personalized advice. Reach him at Daniel.Hayes@advorahq.com.
