Definition of Equity

• The term "equity" generally means ownership. Specific definitions are dependent upon the field involved. Real estate equity is the difference between the value of a property and what is owed. In the financial industry equity is the value of assets owned in a brokerage account less any margin debt -- money borrowed to buy securities -- that's owed. Equities can include stock market investments. Individual equity is the person's net worth after all assets are liquidated and debts paid.
  
  

Inherited Property

• Property and goods inherited are usually given a monetary valuation as of the day of death. The Internal Revenue Service created guidelines outlining acceptable methods of valuing various property and goods for inheritance purposes. Inherited cash and property are not reported on an individual's income tax. Inheritance taxes are paid by the estate before dispersing assets. The cash and items are not considered income and not taxable as income. However, there might be capital gains taxes in the future when items are sold. It is important to establish a cost basis for future tax reporting purposes.
  
  

Income on an Inheritance

• Inherited property sometimes generates income for the new owner. The proceeds are considered income and subject to taxes, such as rent on real estate property and interest and dividends on securities. Inherited stocks would not have to be reported, but interest and dividends received would.
  
  

Fair Market Value for Securities

• The IRS established fair market value (FMV) rules for pricing inherited items. The cost basis provided to the heir is usually a valuation as of the date of death. The heir can find date of death valuations for inherited securities in historical databases such as on "The Wall Street Journal" website.
  
  A special tax rule allows the executor of an estate to request that the valuation date be six months after the date of death to reduce estate taxes owed. If a discrepancy exists between an heir's estimated value for an item and the value reported on an estate tax return, the estate value should be the accepted price. Inherited securities are considered long term no matter how long they were previously owned; the original owner may have owned the security for just one day. The sale of inherited stock is considered a long-term gain or loss at whatever time it's sold by the new owner.