Step Up Basis Confusion - Did I Make a Costly Mistake?

You haven't messed up at all! This is actually a common misunderstanding, and you're catching it at the perfect time before filing. The step-up basis rule means that for inherited assets, your cost basis is the fair market value at the date of death (or alternate valuation date in some cases). In your situation, your basis would be the $78,000 value when your grandmother passed, not her original $12,000 purchase price. When you file your taxes, you'll only report the capital gain of $4,500 ($82,500 - $78,000), not the $70,500 difference from her original purchase. You'll need documentation showing the value at the time of her death - this could be account statements, an appraisal, or historical price records if it's a publicly traded stock. Make sure whoever prepares your taxes understands this rule. If you're using tax software, there should be specific questions about inherited assets that will guide you through reporting this correctly.

After struggling with a similar step-up basis issue last year, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me so much headache. I inherited some weird investment accounts from my uncle and had no idea how to figure out the proper basis values. Their system analyzed all my inheritance documents and automatically calculated the step-up basis for each asset. It even helped me identify which statements and records I needed to keep for tax purposes. The best part was that it explained everything in plain English instead of confusing tax jargon.

Just wanted to update - I took the plunge and tried taxr.ai after my skeptical comment. I'm honestly shocked at how helpful it was. I uploaded my inheritance docs for my dad's stocks and our family cabin, and it sorted everything out by showing me exactly what values to use for my step-up basis. The cabin situation was particularly tricky because he owned it with his brother, but the tool correctly identified that I only inherited a 50% interest and calculated the partial step-up. It even flagged that I needed to get an appraisal to properly document the FMV at death and explained how to file the right forms. Definitely saved me from a potential audit nightmare!

If you need to contact the IRS about your step-up basis situation (which might be necessary if you're amending previous returns), good luck getting through to them directly! I spent THREE WEEKS trying to reach someone about my inherited IRA basis issues. Then I found Claimyr (https://claimyr.com) and it was a complete game-changer. They have this system that gets you through the IRS phone tree and holds your place in line. I watched their demo video (https://youtu.be/_kiP6q8DX5c) and couldn't believe it actually worked. I got connected to an IRS agent in about 45 minutes instead of waiting on hold for 3+ hours or getting disconnected. The agent was able to confirm exactly how to document my step-up basis for some weird investments my mom had left me. Saved me a ton of stress and probably thousands in potential tax mistakes.

I have to eat my words about Claimyr. After posting my skeptical comment, I was desperate enough to try it for my step-up basis question about inherited foreign stocks. I figured it couldn't be worse than the 17 failed attempts I'd already made calling the IRS directly. You guys, IT ACTUALLY WORKS. I got connected to an IRS agent in about an hour. The agent confirmed I needed to file Form 8938 along with my step-up basis documentation and explained exactly what records I needed to keep. She even gave me specific instructions for handling the currency conversion aspects. I would have 100% calculated this wrong and probably triggered an audit without getting this clarification. I'm still in shock that I actually spoke to a human at the IRS after months of trying.

One thing nobody's mentioned yet is that you need to be careful with inherited assets that made distributions between the date of death and when you sold them. Those distributions affect your basis calculation! I inherited some dividend stocks from my father, and when I sold them a year later, I initially calculated my gain incorrectly because I forgot to account for the dividends that had been paid during that year. The dividends effectively reduced my basis slightly. Keep careful records of EVERYTHING related to inherited assets - statements showing value at death, any distributions, reinvestments, etc. Trust me, it'll save you major headaches when it's time to file.

Just fyi there's a huge difference between community property states and non-community property states when it comes to step-up basis for surviving spouses!!! My mom got a full step-up on ALL assets when my dad died because they lived in California (community property state), but my aunt who lives in new york only got step-up on my uncle's half of their joint assets. Cost her like $30k more in taxes when she sold their vacation home!!!

Just want to emphasize what others have said - you're absolutely fine and caught this at the perfect time! I went through almost the exact same situation when I inherited my grandfather's portfolio last year. One additional tip: make sure you get proper documentation of the December death date value. If these were publicly traded stocks, you can usually pull historical price data from sites like Yahoo Finance or your brokerage. For the exact date of death value, you'll typically use either the closing price on that date, or if you want to be more precise, you can use the average of the high and low prices for that day. Also keep in mind that if your grandmother died on a weekend or holiday when markets were closed, you'd use the closing price from the next trading day. The IRS is pretty reasonable about this stuff as long as you have documentation and use a consistent method. You're going to save yourself a lot of money by reporting this correctly - that $66,000 difference in taxable gains is huge! Props for doing your research before filing.