How does a dividend distribution affect a 100% shareholder's stock basis when the stock was inherited with a stepped-up basis?
Understand the Problem
The question is asking about the impact of a dividend distribution on a shareholder's stock basis, specifically when the shareholder inherited the stock with a stepped-up basis. We need to determine if the dividend increases, decreases, has no effect, or adjusts the basis to the original owner's.
Answer
Dividend distributions do not reduce stock basis, different from non-dividend distributions that will decrease the stock basis.
A dividend distribution does not typically reduce the stock basis of a 100% shareholder, even if the stock was inherited with a stepped-up basis. However, non-dividend distributions will decrease the stock basis.
Answer for screen readers
A dividend distribution does not typically reduce the stock basis of a 100% shareholder, even if the stock was inherited with a stepped-up basis. However, non-dividend distributions will decrease the stock basis.
More Information
The cost basis of inherited stock is generally the fair market value of the stock on the date of the original owner's death. This is called a "stepped-up basis."
Tips
A common mistake is to assume that all distributions reduce stock basis. It is important to differentiate between dividend and non-dividend distributions.
Sources
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