What is the cost basis of a stock that Andy bought for $10 and valued at $20 at his death, but worth $25 when distributed?

The cost basis of an asset, such as stocks in this context, refers to the original value or purchase price that is used for tax purposes, which includes determining capital gains. In the case of stocks inherited or transferred upon death, the Internal Revenue Service (IRS) allows for a step-up in basis. This means that the cost basis of the asset gets adjusted to its fair market value at the time of the owner's death rather than remaining at the original purchase price.

In this scenario, Andy bought the stock for $10, but when he passed away, the stock was valued at $20. Therefore, for the purpose of inheritance, the cost basis would be stepped up from the original purchase price to the fair market value at the time of Andy's death, which is $20. If the stock is later distributed and it is worth $25, that figure pertains to its current market value but does not affect the stepped-up basis for tax purposes.

Thus, the correct cost basis of the stock, in this instance, is indeed $20, reflective of its value at the time of Andy's death.