If you sell stock you inherited, the tax bill is keyed to its value at the time of the original owner’s death. By Kimberly Lankford, Contributing Editor May 1, 2014 My uncle died a few months ago and left me some stock he purchased in the 1970s. I’d like to sell some of it, but I am worried about taxes. If I sell it, will I be taxed on the increase in value since he bought it or on the gains since he passed away? SEE ALSO: Heirs Should Treat a Windfall With Special Care The cost basis for inherited stock is usually based on its value on the date of the original owner’s death, whether it has gained or lost value since he or she purchased it. If the stock is worth more than the purchase price, the value is stepped up to the value at death. For example, if your uncle purchased the stock for $1,000 and it was worth $30,000 when he died, and you then sell it for $32,000, you’ll be taxed only on a $2,000 gain. If the stock loses value after your uncle dies -- say, it drops to $27,000 -- then you’ll be able to deduct a $3,000 loss. If the stock had lost value since the original owner purchased it, the basis is adjusted down to the value at death. That means you can’t write off the loss that occurred while he was alive. Say he bought the stock for $1,000 but it was worth just $500 when he died. Your basis will be $500. If the stock is worth $1,200 when you sell it, you’ll be taxed on a $700 gain. All inherited stock qualifies for the lower rates on long-term capital gains, no matter how long you hold it -- even if you hold it for less than a year after your uncle’s death. Losses on the sale of your stock can offset gains on the sale of other investments dollar for dollar. If the losses exceed all of your capital gains for the year, up to $3,000 of the excess loss can be deducted against other kinds of income. In most cases, the cost basis is set as the stock’s value on the date of the previous owner’s death, but sometimes the executor of a large estate who files an estate-tax return can choose to set the basis at the value six months after the owner died. Got a question? Ask Kim at firstname.lastname@example.org.