Mutual Funds
What is the cost basis of an inherited mutual fund?
Inherited = stepped-up basis (FMV at death). Gifted = donor's cost basis (carryover basis).
Complete Analysis & Legal Rationale
Inherited securities receive a "stepped-up" cost basis equal to the fair market value (NAV for mutual funds) on the date of the original owner's death. This eliminates any unrealized gains that occurred during the decedent's lifetime, potentially saving the heir significant capital gains taxes.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Matches the verified teaching point in the explanation.
Does not match the governing concept in the explanation.
Does not match the governing concept in the explanation.
Does not match the governing concept in the explanation.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA materials.