The Series 65/66 exams are constantly reaching for more details than their exam outline would imply. Luckily, we have customers taking the exams who report some of the test writers' little tricks. How would you answer the following practice question?
If you inherit appreciated property, your tax basis is
A. fair market value on the date of death
B. fair market value 6 months after the date of death
C. neither choice listed
D. either choice listed
EXPLANATION: if you inherit, for example, 1,000 shares of MSFT that Grandma purchased for $10 each, you can take the fair market value as of the date of her death or six months later--which is when most estates close out. If the stock is worth $50 on her date of death, you can take that stepped-up value as your cost basis. Or, if the stock is worth $55 six months later, you can take that as your stepped-up cost basis. Also remember that any gains are considered long-term, regardless of your holding period.