Hoping some of you more saavy stock traders can give me some direction.
I recently inherited 500 shares of Coke from my grandfather. He purchased the stock approx. 20 years ago. I'm not planning on cashing the stock, what happens with the capital gains if he were to die before I cash it in?
If it was a gift, I think the basis (for the purpose of figuring capital gains tax) stays at the price at which the giver acquired it. If you inherit it, I think the estate pays any tax and a new basis is established at wherever the price was when you acquired the stock.
You can be given up to $10,000 without any tax whatever. More than that is subtracted from the estate tax exemption (the amount that can be subtracted from the total value of the estate before figuring the its taxable value) -- currently $600,000, but rising gradually over the years to $1.1 million.
My guess is that you should claim a new basis at the price you received the stock, but your grandfather should be made aware that as such, the value would reduce the exemption on his estate from estate taxes, and consequently could affect other heirs (because their inheritance would be reduced because the estate might be subject to more tax).
That's what I think, others probably know more/better.