Inheriting a Brokerage Account: What to Do With Inherited Stocks and Funds

A taxable brokerage account is one of the best assets to inherit from a tax standpoint. The step-up in basis can eliminate decades of embedded capital gains — but only if you understand what you have and act deliberately. Here's the full picture.

The step-up basis reset

When you inherit a taxable brokerage account, the cost basis of every position is stepped up to the fair market value (FMV) on the date of death — not what the decedent paid.¹ This is the IRC §1014 step-up rule.

Example: Your parent bought Apple stock for $12,000 in 2005. At death, it's worth $310,000. You inherit it with a basis of $310,000 — the $298,000 gain that built up over 20 years is permanently erased. If you sell immediately, your capital gain is $0.

Additionally, under IRC §1223(11), inherited assets automatically qualify for long-term capital gains rates regardless of how long you hold them after inheriting.² You could sell on day one and pay 0%, 15%, or 20% — not short-term rates that can reach 37%.

Sell, hold, or rebalance — the decision framework

The step-up creates an optionality that disappears over time. Here's how to think through the decision:

Sell immediately

If the inherited portfolio doesn't match your risk tolerance or investment allocation, selling shortly after inheriting is often the right call. You pay little or no capital gains tax (basis ≈ current value). You redeploy the proceeds into your preferred asset allocation. Use the Step-Up Basis Calculator to estimate the exact tax impact before you sell.

Hold the portfolio as-is

If the portfolio is well-diversified and fits your long-term goals, holding is reasonable. Future gains above the stepped-up basis will be taxable — but that's the same as any investment you buy today. The "hold" decision makes most sense when the portfolio is already diversified and you'd buy the same assets anyway.

Selectively rebalance

This is the most common approach. Sell positions that are concentrated, overexposed to a single sector, or speculative — you pay little or no tax. Keep positions you'd hold anyway. For positions that have declined below the stepped-up basis, you can harvest a loss on day one: sell, recognize the capital loss, and offset other gains elsewhere.

2026 long-term capital gains rates on inherited assets

Gains on inherited assets held in a taxable brokerage always qualify for long-term rates. The 2026 thresholds (IRS Rev. Proc. 2025-32):³

The 3.8% Net Investment Income Tax (NIIT) applies on top of these rates for capital gains income that pushes your MAGI above $200,000 (single) or $250,000 (MFJ).⁴ For very large gains, the effective rate becomes 23.8% federal — plus any applicable state tax.

The 0% bracket opportunity: If your total taxable income falls below $49,450 single or $98,900 MFJ — including the capital gain itself — some or all of the gain is taxed at 0%. This can happen in years of low earned income (a gap year, early retirement, business loss), making those windows worth planning around.

Concentrated positions: diversify for free

One of the most painful financial planning situations is owning a concentrated position — 30-60% of wealth in one stock — while facing a large capital gain on any sale. Inheritance eliminates that problem. Because the basis resets to FMV at death, you can sell a $400K concentrated position in a single stock with a $0 capital gain and immediately diversify.

This opportunity is time-limited. Each day you hold the position, you accumulate new gains above the stepped-up basis. If you plan to diversify, do it early — ideally within the first few months of inheriting.

One wrinkle: if the stock has dropped since the date of death, you can recognize a capital loss (basis > current value), which can offset other capital gains in your tax year — including other sales from the same inheritance.

Community property vs. common-law states

For married couples, the step-up applies differently depending on your state:

• Community property states (AZ, CA, ID, LA, NM, NV, TX, WA, WI): Both spouses' halves of community property assets receive a step-up when one spouse dies — a 100% step-up on jointly owned assets, even on the surviving spouse's share.
• Common-law states (most other states): Only the deceased spouse's half receives a step-up. A jointly held account gets a 50% step-up.

This difference can be significant for long-married couples with highly appreciated joint accounts. Confirm your state's rules with an advisor before making any sales.

Charitable giving with inherited brokerage assets

If the account has appreciated above the stepped-up basis (you've held it for some time post-inheritance), donating those appreciated shares directly to charity — rather than selling first and donating cash — produces a double tax benefit: you get a charitable deduction for the full current value, and you avoid the capital gain entirely.

A donor-advised fund (DAF) accepts shares directly and lets you distribute grants to multiple charities over time. This is often more flexible than giving directly to each charity individually, especially if you're charitably inclined but want time to decide which organizations to support.

What a specialist advisor does differently

A generalist sees an inherited brokerage account and thinks "it's just a taxable account." A specialist thinks:

• Was the FMV properly documented at date of death? (Closing prices for stocks, appraisal for restricted shares or alternative assets)
• Is the alternate valuation date (6 months post-death, IRC §2032) an option? If the portfolio has declined, electing AVD can step up basis to the lower value — and generate losses for the estate to deduct on Form 706.
• Are there positions in the account that don't qualify for step-up? (IRC §1014(e) restricts step-up on assets gifted to the decedent within one year of death)
• How does the sell/hold decision interact with your overall income picture — other income, other gains, IRMAA thresholds?
• Inherited business interests, restricted stock, or pre-IPO shares have valuation and liquidity complexity beyond public stocks

Related tools and guides

• Step-Up Basis Tax Savings Calculator — estimate your exact federal tax on inherited stocks with and without step-up
• Inherited IRA 10-Year Rule Guide — how the 10-year distribution rule works for inherited retirement accounts
• What to Do With an Inherited House — step-up basis and tax math for inherited property
• What to Do When You Inherit Money — the full first-year playbook across all asset types