A stock that an individual obtains through an inheritance after the original holder has died. The cost basis for the stock is based on the market value of the security upon the donor's death. If the stock value increased during the time it was held by the deceased, its cost basis is "stepped up" when ownership is transferred . Taobiz explains Inherited Stock Unlike gifted securities, for tax purposes, the security is not valued at its original cost basis. Only the appreciation from the day of inheritance is subject to a capital gains tax.