Who pays capital gains tax on this stock sale?

By Karin Price Mueller | NJMoneyHelp.com for NJ.com

Q. I am the executor for my mother’s will and I have to do the final distributions according to her wishes. She had quite a few shares of PSE&G stock that was purchased in 1998 and she had the dividends reinvested. She passed earlier this year and the stocks were sold this April. Will the estate be responsible for capital gains taxes from any profits made during the last 22 years?


— Unsure


A. We’re sorry to hear about your mother.


Back in 1998, the stock price of Public Service Enterprise Group — the holding company for PSE&G — sold for about $15 per share.


At this writing, it’s now selling at an all-time high of about $65 per share with an annual dividend of 3.16%, which your mom reinvested.


She did very well with her investment, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.


He said your mother’s estate is eligible for a step-up in basis for all her assets, including her Public Service stock.


“The term ‘step-up in basis’ refers to the readjustment of the value of an appreciated asset for tax purposes upon inheritance,” Kiely said. “A step-up in basis adjusts the value of an asset when it passes from an owner to an heir.”


The higher market value of the asset at the time of inheritance is considered for tax purposes, Kiely said. So when the estate sells the stock, the selling price is the price of the stock the day it was sold. The cost basis would be the average of the high and low price on the day your mother passed away, he said.


“Under current law, the tax on the capital appreciation on your mother’s Public Service stock is forgiven,” Kiely said. “I say this because there currently is a movement in Congress to do away with the step-up in basis upon death.”


Email your questions to Ask@NJMoneyHelp.com.


Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.

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