By Adam Jusko, ProudMoney.com, firstname.lastname@example.org
If you have inherited stock from someone close to you, you will eventually need to know the stock’s Date of Death Value when you go to sell that stock, in order to pay the correct tax on the stock sale. The value of the stock on the date of death is considered equivalent to what the purchase price would have been if you had actually purchased the stock, and you would be taxed on any gains beyond that original Date of Death Value. So, if you inherited 100 shares of stock with a value of $100 per share on the date of death, the stock would start with a value of $10,000. If you later sold it at $125 per share and received $12,500 for the sale, you’d be taxed on the $2500 difference between the Date of Death Value and the value when sold.
But how exactly is that Date of Death Value calculated?
Logic might suggest that the stock’s starting value would be the closing price on the date of death. But in reality the value is calculated by averaging the highest price and lowest price at which the stock traded on that day.
For example, if your loved one died on January 27 and you inherited stock, you would look at the stock’s highest and lowest price on that day. Let’s say the stock started the day priced at $99.70, then dipped down to $99 before rallying to $101 and then settling back to finish that day at $100.47.
The Date of Death Value on that stock would be $100. Why? Because the lowest price for the day was $99 and the highest prices was $101. The average of those two prices is $100. ($99+$101 = $200, $200 divided by 2 = $100)
What if the death is on a weekend?
If a person dies on Saturday or Sunday, you might think you’d simply use the stock prices from Friday, but that’s not how it works. (Which seems illogical, we know.) Instead, you’d actually add the high and low prices from both Friday AND Monday, then divide by four.
So, if Friday’s high and low were $101 and $99, but Monday’s high and low were $102.50 and $100.50, you’d get a Date of Death Value of $100.75. (Doing the math… $101+$99+$102.50+$100.50 = $403. Then, $403 divided by 4 = $100.75.)
Where do I find high and low prices for a particular date?
There are a number of sites that can show you the high and low stock prices for a specific date. Really all you’d have to do is search on Google using the company name or ticker symbol to find historical data from a relevant website. For example, doing a quick search on Google I quickly found historical High and Low prices by day for Starbucks (SBUX) on the NASDAQ website.
A possible exception for Date of Death Value
If the person who has died owned an exceptionally large estate overall, which might require the payment of estate taxes, it is possible that all of the assets of the estate could be valued six months later, at an Alternate Valuation Date. The reason the executor of an estate might do this is if the overall value of the estate has declined in those six months and would thus decrease the overall tax liability.
Note that the executor of an estate can not cherry pick the values of stocks or other assets to find the lowest value of each in determining the overall estate’s value. The overall estate value is calculated on a fixed date, with the value of every asset as of that date being used in the calculation, whether that is the Date of Death or the Alternate Valuation Date six months later. So, if a particular stock declined in value after the date of death but the value of the overall estate went up, the executor would still want to use the Date of Death in determining the overall estate value, and would thus need to calculate the value of that stock at the higher price on the date of death.
If you are in a situation where estate taxes are a concern, you will probably want the services of a tax attorney who will help you through this, but it’s good to have a basic understanding of how it works. (Estate taxes don’t kick in unless the estate is worth over $11.5 million, as of the 2020 tax year.)
Note that when it comes to taxes, Internet research is a good first step, but you might also want to discuss your particular situation with a tax attorney or accountant. This article is not intended as specific advice for your particular situation or as a replacement for personalized help you might receive from a tax professional.