If appreciated securities are inherited, the tax basis to the beneficiary is:
A. cost of the securities
B. fair market value at the date of death
C. fair market value 6 months after death if values have fallen
D. either Choice B or C above
A
The best answer is D.
The basic rule for inherited securities is that they are transferred to the beneficiary at fair market value at the date of death. However, the tax code allows an exception for estates that require a federal filing (those with over $5,450,000 of assets in 2016). In this case, the estate can choose to use an "alternate valuation date" that is set 6 months after death. It would choose to do this if the securities have depreciated, resulting in a lower estate tax liability.