Question:
My father died in 2022. I was named the personal representative of his estate and sold his stock in his investment account in 2024 before distributing the proceeds to all my siblings. Would the funds be considered capital gains for the heirs? Do I need to file anything with the IRS to indicate the heirs received the funds? The CPA that did his 2022 and 2023 taxes said his estate didn’t receive enough money after death to file an estate income tax return.
Response:
There may have been some capital gain on the sale of the stock in your father’s estate, but only to the extent that the value went up between the date of his death and the sale of the stock.That is because stock, like other assets such as real estate, receive a “step-up” in basis upon the death of the owner to their date of death value.
You will have to prepare an income tax return for the estate for 2024 and report the capital gain, if any. Unlike other income earned by the estate, such as interest, dividends and rents, which typically passes through to the heirs, estates (like trusts) usually pay any tax due on capital gains.
However, there are exceptions, so check with your accountant regarding whether the gains, if any, can be treated as belonging to the heirs. If they are, the estate will issue them K-1s, which are like 1099s, reporting the net gain attributable to each.
