Capital gains on inheritance

[skiMD]

About two years ago my wife and I inherited approx $50,000 in a taxable investment account (mutual funds, stocks, etc) after her grandfather died. We have not touched this money at all. We have paid taxes on dividends since inheriting it. We have discussed using this money to pay back my loans more quickly. My question is, what would our tax burden on it be if we were to liquidate the assets? We are in the 28% tax bracket for 2015 if that matters. It's current value is around 57k. Would we pay taxes on the whole thing or just on the gains since we inherited the account? Before her grandfather died, he took steps to minimize our tax hit but beyond that I don't know specifics of what he did. Trying to get better with understanding these things but still a newbie so any help is appreciated.

[Hatton]

Inherited assets are stepped up meaning your basis is the value on the day you inherited the asset not the grandads purchase price.  Your gain would be long term capital gain on the $7000.

[jfoxcpacfp]

You will owe taxes on only the $7,000. As hatton1 correctly stated, you received a stepped-up basis at the date of your grandad's death. iow, it is as if you invested the $50k on the date he passed away. You would pay taxes at reduced long-term capital gains rates on any gains that you realized over 1 year ago. Any capital gains distributions that were made within the last year are short-term capital gains and will be taxed at your marginal (top) income tax rates.