What is the stock basis for Zeke after he inherited shares of stock from his father?

The stock basis for Zeke after inheriting shares of stock from his father is determined by the fair market value (FMV) of the stock on the date of his father's death. This principle is rooted in the step-up in basis rule, which allows the recipient of inherited property to receive the asset at its value at the time of the decedent's passing, rather than at the original purchase price by the decedent.

Using the FMV on the date of death helps to address the appreciation or depreciation of the asset over time, ensuring beneficiaries like Zeke are not subject to capital gains taxes on any increase in value that occurred while the asset was held by the decedent. This makes it an equitable approach for determining basis when an asset is inherited, reducing potential tax burdens on heirs and making the transaction more manageable.

The other options, such as the price his father paid for the stock or a price from six months prior to his father's death, do not account for the changes in value that might have occurred after the purchase or before the inheritance. The average of the basis on the day of inheritance and the sale date is also incorrect because inherited assets follow specific rules that focus solely on their date of death valuation for tax purposes.