Denver, CO asked in Tax Law for Colorado

Q: I'd like to give stock in my will -- how would that get taxed?

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1 Lawyer Answer
D. Mathew Blackburn
D. Mathew Blackburn
Answered
  • Tax Law Lawyer
  • Englewood, CO
  • Licensed in Colorado

A: When an individual passes their property receives a step-up in basis to the current Fair Market Value either on the date of death or what's call the alternative valuation date. There are reasons to pick either I won't go into that right now.

What is basis? It's what you paid for the stock. So you buy 1 share of Acme at $40. If you sell it at $90 you pay tax on the gross revenue less basis 90 - 40 = $50

If you own the stock at death the basis "steps up" from $40 to $90 (FMV on date of death or alternative valuation date).

If when you pass the value of your estate is over the lifetime exemption (The amount you can give away without paying tax during your life and at death), currently $11.82 MM per person, you would pay estate taxes on the entire estate. If you're below that amount no estate tax is due.

Colorado does not have an estate tax.

No income tax would be due on the stock until the heirs (or the estate) sold the shares and they would pay tax on the net difference between the stepped up basis and the sale price. The nature of the income tax would be long-term capital gain regardless of holding period.

If there is a dividend it would be ordinary income to the estate if it was declared prior to distribution and OI to the heir after distribution.

That should cover all the different places the stock would be taxed.

Linda Simmons Campbell agrees with this answer

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