This might help:
"Determining Your Basis
Your initial basis in stock you inherit is based on the fair market value of the stock on the relevant valuation date. In most cases (see exception below) the valuation date is the date of death. In tax lingo we say that the stock’s basis isstepped up (or stepped down) to the date-of-death value.
Example: Sally’s father bought 800 shares of XYZ stock many years ago for a total of $1,600. Sally inherited the stock when her father died. On his date of death, the value of the stock was $32,000. Sally’s basis in the stock is $32,000. If she sells it for $28,000, she has a loss of $4,000; if she sells it for $40,000 she has a gain of $8,000.
This tax rule provides a significant benefit to Sally. No one had to pay income tax on all that increase in value that occurred while her father owned the stock. Yet Sally gets the same basis as if she bought the stock for $32,000.
This rule can work the other way, though. Suppose Sally’s father bought the stock for $32,000, but it was only worth $1,600 when he died. Now the basis will be stepped down." Now for the important part assuming things don't change drastically (my note). "No one will ever receive an income tax deduction for the loss of value in this stock while Sally’s father owned it."
There is an exception, however. This link addresses that:
http://fairmark.com/investment-taxation/capital-gain/stocks-and-other-securities/inherited-stock/
