Tax & EvaluationQuestion 103 of 110
An investor dies owning fund shares purchased for $20,000 that are worth $50,000 on the date of death. The heir's cost basis is generally:
a.$20,000, the decedent's original cost
b.$50,000, the fair market value at the date of death
c.Zero, because inherited property has no basis
d.$35,000, the average of cost and market value
Explanation
Inherited property generally receives a stepped-up basis equal to its date-of-death fair market value, wiping out the unrealized appreciation for income tax purposes. Carrying over the decedent's cost or using an average has no basis in the tax rules. Gifted property during life, by contrast, generally carries over the donor's basis.
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