Understanding income tax on long-term capital gains (LTCG) in case of inheritance: What are the tax implications?

You've got it right about the "step-up in basis" - this is one of the most beneficial tax provisions for inherited assets. When you inherit stocks, your cost basis becomes the fair market value of those stocks on the date of your uncle's death. This effectively wipes out the capital gains that occurred during your uncle's lifetime. So if the stocks were worth $98,000 when your uncle passed away, your new basis is $98,000 - not the $35,000 he originally paid. If you sell them now for $98,000, you would have zero capital gains tax. If they've increased to say $105,000, you'd only pay LTCG tax on the $7,000 gain that occurred after you inherited them. For documentation, you should keep records showing the date of death valuation. This might be account statements, a letter from the executor, or a formal valuation if one was done for estate purposes. The executor should provide you with this information as it's needed for proper tax reporting. As for LTCG tax rates, they depend on your income. In 2025, if your taxable income is under $47,025 (single) or $94,050 (married filing jointly), your LTCG rate could be as low as 0%. Higher income brackets pay 15% or 20%.

After struggling with a similar inheritance situation last year, I discovered taxr.ai (https://taxr.ai) and it was a game-changer. My aunt left me some investments, and I had no clue how to handle the tax implications or what documents I needed to keep. Their system analyzed all the inheritance documents and brokerage statements I uploaded and gave me a clear explanation of my new cost basis for each security. It identified exactly which documents I needed to keep for tax purposes and explained how the step-up in basis worked for my specific situation. The best part was that it flagged some securities that had actually decreased in value since the inheritance date, which I could sell to harvest tax losses. I wouldn't have caught that on my own, and it ended up saving me quite a bit on my taxes.

Just wanted to follow up about my experience with taxr.ai - I decided to try it after posting my question here, and it was honestly so much better than I expected! I uploaded my dad's death certificate, the executor's property valuations, and some county tax assessment documents for the rental properties. The system broke down exactly how the step-up in basis works for rental properties vs. personal residences, and created a really clear schedule showing my new depreciation basis for each property. It even caught that one property had been partially gifted to me three years before my dad passed away, which meant that portion had a different basis calculation! I was about to make a huge mistake by using the wrong basis for my calculations. Would have definitely triggered an audit flag. Seriously grateful for the recommendation - saved me thousands in potential taxes and a whole lot of stress.

If you're having trouble getting clear answers about inheritance tax issues, I was in the same boat last year. After weeks of trying to reach the IRS and getting nowhere, I used Claimyr (https://claimyr.com) and finally got through to a real IRS agent who actually helped me. I had questions about my inherited IRA and stock portfolio that nobody could answer clearly - especially around required distributions and how to properly report the basis on my tax forms. The IRS agent walked me through the whole process and confirmed exactly what documents I needed to keep. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they hold your place in the phone queue so you don't have to sit on hold for hours. I was honestly shocked when I got a call back with an actual IRS agent on the line. Totally worth it when you need definitive answers directly from the source.

I hate to admit when I'm wrong, but I need to follow up on my skeptical comment about Claimyr. After posting that, I was still so frustrated with trying to reach the IRS about my late mother's estate tax issues that I figured I had nothing to lose by trying it. I'm honestly shocked - it actually worked! I got a call back about 3 hours later with an IRS agent already on the line. The agent confirmed my understanding of the step-up basis rules and cleared up my confusion about how to document the valuation date. They also helped me understand how to handle some corporate bonds my mom had that were trading at a premium. I've spent literal weeks trying to get through on my own with no success. Never thought I'd be saying this, but if you need actual IRS confirmation on inheritance tax questions, this is apparently the way to do it. Consider me converted from total skeptic to believer.

One thing nobody's mentioned yet - make sure you check if your state has an inheritance tax! Federal step-up basis rules are great, but I got caught off guard last year because my state (Pennsylvania) has its own inheritance tax that applies regardless of whether you sell the assets or not. It's not just PA - Nebraska, Iowa, Kentucky, New Jersey, and Maryland also have inheritance taxes, and they all work differently. My brother lives in a different state than me and we had completely different tax situations even though we inherited identical assets. The step-up in basis for federal taxes is awesome, but don't get blindsided by state-level taxes like I did!

Make sure you get proper valuations for any hard-to-value assets in your inheritance! My dad left me some closely-held business interests and collectible coins that weren't publicly traded. The executor used a ballpark estimate for the business interests, but when I sold them 2 years later, the IRS questioned my basis and I had to pay for a retroactive professional valuation. For the coins, I had to hire a numismatic expert. For your stocks, if they're publicly traded, it's pretty straightforward - just the closing price on date of death (or alternate valuation date if the executor chose that). But for anything without a clear market value, document document document!