If you live in a community-propertystate and inherit stock from yourspouse, your cost basis becomes thevalue of the stock on the date ofdeath, whether that amount is higheror lower than the original purchaseprice. (In other states, the cost basisof jointly-owned stock is stepped upor down by 50%.) If your cost basisgoes up, you can sell the appreciatedstock and pay no tax. If it goes down,however, you lose the tax benefit ofany capital loss. In fact, you'll paytaxes on any subsequent gains whenyou sell, even if the stock never getsback to the price that was originallypaid for it. If a spouse is in poorhealth, lock in capital losses, whichcan be used to offset capital gains.You can also deduct up to $3000 ofexcess losses against ordinary incomeand carry any remaining amount forwardinto future tax years.