inherited stock sale

Forum|Forum|7 years ago
April 1, 2019
2 replies
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my wife inherited some stock from her dad a few years ago. he had invested in a start-up company purchasing 22,500 shares at 33 cents a piece. this investment was basically worthless until they sold the company as they weren't publicly traded etc. The company just recently sold to some investors who are buying all the shares for 1.32 per share, so she has received a nice check. We're trying to think ahead to next years tax time and set aside a portion of this if need be to cover taxes etc.

my QUESTION is: is this income she has received taxable and considered Capital Gains? Is the taxable portion the difference between what her dad invested years ago .33 and the 1.32 it is being purchased for now? Any advice on this would be appreciated. Thanks!

N

NCPERSON1

The tough part is that the cost basis is the value of the stock on the date he passed - not $.33 per share - because of the federal estate “step up” provisions

Be careful with your terminology, it wasn’t that ithe stock was “worthless” because it was not publically traded, it was “hard to value” because it was not publicly traded

If you can determine it was worth $1.32 when he passed, there is no taxable gain ; if it was worth more, then you actually have a capital loss today

Does that help?

K

klkemp100Author

Employee

How would I go about finding out that value when he died since the stock was not publicly traded etc? Thanks

N

NCPERSON1

Obviously you are incented to justify the highest value possible to minimize the gains

Ideas

- ask the executives running the company at the time what internally was thought to be the value

- striaghtline the price rom the time your FIL bought the stock until sale

- ask an accountant how he would go hack and value the company at the time you FIL passed

Maybe others in this community have other ideas

LudwigVan_fan

Employee

Was a valuation done of the stock at the time your Father-in-Law passed away? Perhaps if a state estate tax return was required?

Or some other reason that required a valuation of assets? If so, that would be of great help.

If not, then some other means is needed to reconstruct the value at DOD.

See if you can secure financial statements of the company for the year your FIL passed away, and each year through the year the company was sold.

An analysis could be made based on the financial statements and trying to work backwards from the sale year to the year he passed away.

The problem though is the stock is valued on DOD (date of death). And with non-publicly traded stock, the value is hard to determine. Also, at DOD, I'm presuming your FIL did not own (or perhaps he did) a majority share? If a minority share of stock, value of stock in a non-publicly traded company is also usually given a discount due to the minority interest and lack of sale-ability.

I would try and seek the advice of an accountant or someone who is in the business or has experience in valuing stock.

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**