AI summary
Summary of article:
If a 78-year-old man sells 400,000 yuan worth of stocks before his death, he may have to pay more than 50,000 yuan in taxes on the 300,000 yuan appreciation. If he holds the shares till his death and his children inherit them, he may get a substantial tax benefit due to the increase in cost basis.
A 78-year-old man has stocks worth 400,000 yuan, and the purchase cost was only 100,000 yuan. If you want to sell your stocks now and convert them into cash so that you can leave them to your children in the future, an appreciation of 300,000 yuan may immediately bring a big capital gains tax; But if you don’t sell the stocks and hold the stocks until your death and then inherit them to your children, the results may be completely different.
Investment analysis platform 24/7 Wall St analyzed the hypothetical case of this 78-year-old widowed man. Under current US tax law, if parents sell stocks that have appreciated significantly during their lifetime, and if they are inherited directly by their children in the future, the tax consequences can be thousands of dollars different. The key lies in the “step-up in basis” that many people are unfamiliar with.
Suppose an elderly man bought a stock for NT$100,000 several years ago, and now the market price has increased to NT$400,000. If all were sold now, there would be a capital gain of $300,000. The federal long-term capital gains tax rate in 2026 depends on income, primarily 0%, 15%, or 20%. If the elderly person’s other taxable income is about 50,000 yuan, under this setting, most of the 300,000 yuan profit generated from the sale of stocks will be subject to the 15% tax rate, and the capital gains tax will be about 45,000 yuan.
Additionally, high-income investors may also face a 3.8% net investment income tax (NIIT).ir According to the regulations, the relevant income threshold for single filers is 200,000 yuan. According to the trial calculation based on the above case, there may be an additional NIIT of approximately 5,700 yuan, bringing the total federal tax burden to approximately 50,700 yuan, not including potential applicable state taxes.
But if the elder did not sell the shares and held them till his death, the situation would be very different. According to the IRS, the cost basis of inherited property is generally calculated based on the fair market value at the date of death of the original owner, not the price at which the decedent purchased the property.
For example, when the elder dies, the shares are still worth NT$400,000. After the children inherit the shares, the cost basis will usually be adjusted to NT$400,000. If the child sells it soon at a price close to 400,000 yuan, because the difference between the selling price and the new cost basis is very small, there will be little or no capital gain to be taxed. Therefore, “selling before death” and “inheriting to children after death” can lead to completely different tax consequences.
However, if parents choose to gift stocks directly to their children during their lifetime, the rules are different. The IRS notes that when calculating gain on a gift of property, the donor’s cost basis is generally carried forward. In other words, if the elder directly passes these stocks to his children, the children generally cannot directly increase the cost basis to 400,000 yuan; When they are sold in the future, the appreciation originally accumulated may still be subject to capital gains taxes. Therefore, even if the same batch of stock is ultimately handed down to children under “gift during lifetime” and “inheritance after death,” the tax consequences may be different.
Of course, this doesn’t mean that older investors should hold on to their shares until they die to save taxes. If cash is needed for retirement, medical or long-term care, or if large amounts of assets are concentrated in a few stocks and subject to high market risk, it may still be necessary to sell or reallocate assets.
Summary FAQ
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Because the stock has increased from 100,000 yuan to 400,000 yuan, if it is sold now, the appreciation of 300,000 yuan will immediately become capital gain and should be taxed according to the tax rate; If it is inherited by children after death, the cost basis is usually stepped up to the market value on the day of death, and the tax burden can be significantly reduced.
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Stepping up the cost basis means that when property is inherited, the taxable cost is usually calculated based on the fair market value at the date of the deceased’s death rather than the original purchase price. If the child later sells the asset for close to market value, there will usually be little or no capital gains tax.
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not the same. Gifts during life are generally used based on the donor’s original cost. When the child sells the gift in the future, the appreciation originally accumulated may still be subject to capital gains tax. Only after death, the cost basis can usually be increased, and the tax difference can be larger.
