Tax

How are inherited shares taxed?

When you inherit shares, your cost basis is generally stepped up to the market value on the day the owner died — not what they originally paid. The gain built up during their lifetime is therefore never taxed as income for you; you only owe tax on what the shares do after that date. Inherited shares are also treated as held long-term however soon you sell. Shares you receive as a gift are different: you take over the giver's original basis and holding period.

Tax is national. This page describes the federal rules in the United States for tax year 2026. Most states add their own income tax on top, so there is never one single US rate. If you live and pay tax in another country, the rules are different — see the flags below.

How it works

Date-of-death value. The executor values the shares on that day (or, if elected for the estate, six months later). That value is your new basis.
Sell soon, pay little. Sell inherited shares shortly after and the gain is usually tiny — just the movement since the death.
Not in retirement accounts. An inherited traditional IRA or 401(k) gets no step-up: withdrawals are taxed as income, usually within ten years.
Gifts keep the old basis. A parent giving you shares bought at $10 that are now worth $100: your basis is $10, and you owe tax on $90 when you sell. Sometimes it is better to inherit than to receive.
Joint accounts with a spouse: normally half the shares step up (all of them in community-property states).
Estate tax is separate and only touches estates above about $15 million in 2026.

The worked example

Your aunt bought shares for $20,000 in 1998. They are worth $180,000 when she dies in 2026 and you inherit them. Your basis: $180,000. You sell a year later for $190,000: taxable gain $10,000, long-term, about $1,500 federal. Had she given them to you while alive, your basis would be $20,000 and the gain $170,000.

Figures for 2026 from irs.gov (Rev. Proc. 2025-32 and IR-2025-111), checked September 2026. Your state may tax the same income again. Kiggo does not calculate your tax — your broker reports to you on Form 1099, and the IRS, your state and a tax professional decide.

Kiggo says: The step-up is the one moment the IRS wipes the slate: the shares start over at today's price, and yesterday's gain is forgotten.

The typical beginner's mistake

Selling inherited shares and reporting the gain from the original purchase price decades ago — overpaying tax by thousands. Or the reverse: elderly parents gifting appreciated shares to save on estate tax that would never have been due, and handing the children a huge income-tax bill instead.

How you see it in Kiggo

Kiggo shows the current price and the history of a stock, which helps you find the value on a given date. It does not know how you acquired your shares and does not calculate your tax.

Frequently asked questions

What is a step-up in basis?

The rule that an heir's cost basis in inherited property is reset to the fair market value on the date of death (section 1014), so the gain during the decedent's life is not taxed as income.

Are inherited shares short-term or long-term?

Always long-term, regardless of how long you or the decedent held them.

Do gifted shares get a step-up?

No. You inherit the giver's basis and holding period. If the shares are worth less than the giver's basis at the time of the gift, special loss rules apply.

Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-22.

Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.