Give it now, or leave it as an inheritance?
The same asset can carry very different tax results for the person who receives it. A gift usually keeps the giver’s original basis, while an inherited capital asset generally takes its value at death. Compare the gain at the same sale price.
The same asset. A different starting basis.
Compare the recipient’s gain or loss after an outright gift versus an inheritance. Hold the assumed sale price constant.
The example, step by step.
The situation
- A taxable investment with a $200,000 basis
- Worth $1,000,000 when given, or $1,200,000 at death
- Sold by the recipient for $1,250,000 with $10,000 of selling costs
What the calculator finds
- As a gift, the $200,000 basis carries over, so the sale produces a $1,040,000 gain.
- As an inheritance, the basis is $1,200,000, so the gain is $40,000.
- The difference is $1,000,000 of potentially taxable gain, before any estate or gift tax considerations.
A gift usually carries over the donor’s gain basis; inherited capital assets generally use date-of-death value. Retirement accounts and trusts need their own analysis.
What goes in.
What comes out.
Choose the asset type, then enter the giver’s adjusted basis, the value on the gift date, the value at death, and the recipient’s sale price and costs.
For a gift, the recipient generally uses the giver’s basis for a gain; if the value was below basis at the gift, a different basis applies to a loss. For an inheritance, basis generally resets to the value at death.
The sale price is held constant, so the difference comes only from basis.
What it does not cover.
- It compares basis and gain only, not estate or gift tax, appreciation timing, control or the recipient’s needs.
- Traditional IRAs and other retirement accounts do not receive a basis reset at death.
- Gift-tax-paid adjustments, trusts, alternate valuation and depreciation are outside its coverage.
Questions
Is it better to gift stock or leave it in an estate?
For income tax alone, appreciated assets often leave the recipient with less taxable gain when inherited, because basis generally resets to the value at death. Estate and gift taxes, timing and family needs can change the overall answer.
What is carryover basis?
For a gift, the recipient generally takes the giver’s adjusted basis for figuring a gain. In the example, a $200,000 basis carries over, so selling for $1,250,000 produces a far larger gain than inheriting the same asset.
Do inherited IRAs get a step-up in basis?
No. Traditional IRA balances are income in respect of a decedent, so withdrawals are generally taxed as ordinary income to the beneficiary.
See the decision inside a full plan.
Explore retirement cash flow, compare scenarios and review the assumptions in a free Amicus sample plan.