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Subject:  Re: Capital Gains Tax Date:  3/29/1998  6:30 PM
Author:  KATinChicagoland Number:  3114 of 127753

<<If I inherit 300 shares of a stock that was originally purchased at 8.67 per share and sell it within a month of receiving the gift at 68 5/8, what is the tax liability assuming the 28% tax bracket?>>

The answer depends on whether this was an inheritance or a gift (you refer to it both ways). If you received stock as a result of the death of its previous owner, your basis in the stock is equal to the fair market value of the stock at the death of the previous owner (assuming no adjustments in the meantime). In this case the only gain or loss you would report would be based on changes in the value of this stock after the date of death.

If you received the stock as a gift from a living donor, you acquire the stock with the same basis and holding period as the donor. (This rule, and the rule for the basis of stock acquired from a decedent, are subject to exceptions that probably don't apply, as explained on my web site.) In this case it would appear you have approximately $18,000 of gain and, assuming the donor held the stock more than 18 months (which seems like a safe bet given the change in value) your federal tax would be 20% of that amount, or about $3,600.

Depending on your situation, there may be a hidden additional tax cost. For example, this income could cause you to lose part of your itemized deductions. The different ways additional income can hit your return are too numerous to list, so the only way to know the true tax cost of selling this stock is to work it through a return.

KAT in Chicagoland
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