Author Topic: Question on capital gains tax for my parents  (Read 1838 times)


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Question on capital gains tax for my parents
« on: April 13, 2016, 08:18:56 AM »
My parents inherited some stock when my grandmother passed that has been in the family for some time - perhaps since about the 1930s.  They reinvest the dividends for now and are planning on getting the dividends paid out when my mother retires. 

However, they are under the impression that they "can't ever sell" the stock because they will get killed on the capital gains tax.

I don't have any taxable investments so this is not my area of expertise but my understanding was that the capital gains tax was actually LESS than income tax.  They are in the 25% income tax bracket and (I believe) the 15% capital gains tax bracket. 

So, that means that as they sell stock annually, they would just pay 15% on the amount each year, correct?  Is there anything about a stock being passed down through estates that would affect the taxes on it?

My parents do use a financial planner, who they like, but I'm not super impressed with her.  She keeps telling my parents they can't yet afford to have my mother retire but I think she's being overly conservative.  (Granted, I don't have the whole picture.)

Proud Foot

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Re: Question on capital gains tax for my parents
« Reply #1 on: April 13, 2016, 08:33:36 AM »
The first thing they would need to do is to calculate their basis in the stock.  They will get a stepped up basis to the market value on the day your grandmother passed.  If you know or can work backwards to the number of shares received this shouldn't be too hard to do. The capital gains will not kill them. Because of the stepped up basis there will be less capital gains than if the original cost was the basis.  The 15% capital gains tax only applies to the difference between the basis and what the stock was sold for.

As far as the financial planner, most likely she is going off of the commonly widespread advice of needing 80-90% of current income in retirement.  Based upon this assumption it is likely she is correct but your parents should be going off of their expenses to see if their portfolio is large enough.


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Re: Question on capital gains tax for my parents
« Reply #2 on: April 13, 2016, 09:02:14 AM »
Yes, like Proud Foot said, your parents will only owe capital gains tax on the difference between the sale price and their basis, which is the what the stock was worth on the date of your grandmother's death. That means that even if the stock has doubled in value since then, they'll only need to pay 7.5% of the total value in federal capital gains tax. Hardly being "killed" in my opinion.


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Re: Question on capital gains tax for my parents
« Reply #3 on: April 13, 2016, 02:28:34 PM »
After retirement, if their income drops into the 15% bracket and before taking SS, they can take capital gains that raise total taxable income (page 2 of form 1040) to the top of the 15% bracket and pay $0 on those capital gains.

And yes, knowing the whole picture would likely help.  Up to your parents how much they want to share....