15:27 Do I pay both capital gain tax and estate tax for inherited stocks? Will real estate appreciation be re-started 30 years after inheritance?

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Welcome back to another installment of Tax Tuesday! Tune in as Toby Mathis, Esq. and Eliot Thomas, Esq. break down your tax questions.

0:00 Intro

11:23 As a company, I want to loan money to another company using a promissory note but I don’t want to charge them interest to do so. What is the recommended way to do this? Are there any tax impacts on my company?

15:27 Do I pay both capital gain tax and estate tax for inherited stocks?

21:36 I have an IRA-owned single-member limited liability company (LLC) invested in 3 syndications. One was sold last year and saw a profit. Would I use a 990-T to report both losses and profits? Do I need to report profits or losses on my 1040?

26:45 Does the holding period for real estate start on the acquired date or placed-in-service date? If I bought a property on Nov 2020, the placed-in-service date was March 2021, and I sold the property in December 2021. Would this be a long or short-term capital gain?

31:03 When will we recoup the loss from a wash sale if we are no longer investing?

38:41 When bonus depreciation goes away, what will be the process for cost segregation? How is it calculated? How much will be allowed for deductions and at what times or intervals?

44:06 I have a 501(c)(3) through Anderson Advisors. How do I donate appreciated stock to the charity? How do I record this as a personal donation with appreciation? Do I need to start a brokerage account for the charity to receive stock?

48:36 Should I set up a C corporation for a land-flipping business if I do not have deals yet? Should I start with a pass-through first and then change to C corporation once I see a higher volume of deals?

51:39 If I buy a bigger van for the business, do I depreciate it as an expense in the year I buy it? Where can I find a list of business expenses that are 100% deductible and expenses that are not deductible?

55:44 What is the maximum number of Limited Liability Companies (LLCs) that can be used for the IRC Section 280A(g) deduction? If I have two LLCs can I take the deduction for both? Can the meetings and the fee for using the space for my nonprofit be considered a donation from my LLC?

1:00:34 How do adjusted gross income (AGI) levels affect capital gains? If AGI is below $76,000, do I avoid paying capital gain taxes?

1:04:41 I have Wyoming LLC with Anderson. Should I open the new IRA in the name of the LLC and move funds from a personal IRA that is in my name?

1:10:16 Outro
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Title: Do I Have to Pay Capital Gains Tax for Inherited Stocks | Tax Tuesday #190

Introduction

Inheriting stocks or other investments from a deceased loved one can be a bittersweet experience. While it may bring about a sense of financial security, it also raises questions about tax implications and potential obligations to the government. Specifically, one common inquiry people have is whether or not they have to pay capital gains tax on inherited stocks. In this article, we delve into the intricacies of capital gains tax for inherited stocks, drawing insights from Tax Tuesday #190.

Understanding the Basics of Capital Gains Tax

Before addressing the issue of inherited stocks, it is essential to grasp the concept of capital gains tax. In general, capital gains tax is a levy imposed on the profit realized when selling an asset for more than its original purchase price. This profit is calculated as the difference between the selling price and the initial cost basis (purchase price). Typically, the tax rate varies depending on the length of time the asset was held.

Inherited Stocks and the ‘Step-Up’ in Basis

When it comes to inheriting stocks, the good news is that the taxation process tends to differ from that of other capital gains. The tax burden for inherited stocks is eased by what is known as the “step-up” in basis. Under this provision, the value of the inherited stocks is “stepped up” to their fair market value at the date of the previous owner’s death.

Practically, this means that when you inherit stocks, your cost basis is reset to the value of the stocks at that time. This step-up in basis eliminates the potential capital gains tax liability on any appreciation that occurred before the date of inheritance. It enables heirs to sell the inherited stocks without paying tax on previous gains. Instead, they would pay capital gains tax on the difference between the inherited value and the eventual sales price if any profit is realized at a later date.

Exceptions and Other Considerations

While the step-up in basis can offset significant tax implications for inherited stocks, some exceptions and additional considerations are worth mentioning.

1. Inherited stocks held for a shorter period: If inherited stocks are sold shortly after being received, the tax implications may not differ significantly from those imposed on ordinary capital gains. The step-up in basis only applies to the fair market value at the date of the previous owner’s death. If the inherited stocks are sold in this period, potential gains might not be substantial, and the resulting tax liability may be minimal.

2. IRAs and other tax-deferred accounts: Special rules apply to inherited stocks held within tax-deferred accounts, such as individual retirement accounts (IRAs). Withdrawals from these accounts are subject to different rules and may be taxed as ordinary income.

3. State-specific tax regulations: It is important to remember that while federal tax laws generally govern capital gains tax, individual states may have their own tax regulations that can influence the final tax liability. Consulting with a tax professional or certified public accountant specializing in state tax laws is recommended.

Conclusion

Determining whether or not you have to pay capital gains tax for inherited stocks can be complex, as it depends on various factors such as the length of time you hold the stocks and the specific state regulations you fall under. However, the step-up in basis provision plays a crucial role in mitigating the tax implications of inherited stocks. It resets the cost basis to the fair market value at the date of the previous owner’s death, allowing for potential gains before inheritance to be sheltered from capital gains tax. To ensure accurate and informed decision-making, seeking professional guidance from tax experts is advisable.