Lewes CPA
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Income in respect of a desedent (MS Word)
Income in respect of a decedent(.pdf)
Income in Respect of a Decedent (IRD)
Dear Reader:
I am writing to inform you of certain special tax rules applicable
to several items of income you have received known as “income in
respect of a decedent,” or “IRD.”
For the most part, property you inherit is not included in your
income for tax purposes. Items which are IRD, however, do have to be
included in your income, although you may also be entitled to an IRD
deduction on account of them.
What is IRD? IRD is income which the decedent (the person from whom
you inherit the property) would have taken into his income on his
final income tax return except that death interceded. The most
common IRD item is the decedent's last paycheck, received after
death. It would have normally been included in the decedent's income
on his final income tax return. However, since the decedent's tax
year closed as of the date of death, it was not included. As an item
of IRD, it is taxed as income to whomever does receive it (the
estate or another individual). Not just the final paycheck, but any
compensation-related benefits paid after death such as accrued
vacation pay or voluntary employer benefit payments, will be IRD to
the recipient.
Other common IRD items include pension benefits and amounts in a
decedent's individual retirement accounts (IRAs) at death as well as
a decedent's share of partnership income up to the date of death. If
you receive these IRD items, they are included in your income.
The IRD deduction.
Although IRD must be included in the income of the recipient, a
deduction may come along with it. The deduction is allowed (as an
itemized deduction) to lessen the “double tax” impact that is caused
by having the IRD items subject to the decedent's estate tax as well
as the recipient's income tax.
To calculate the IRD deduction, the decedent's executor may have to
be contacted for information. The deduction is determined as
follows: First, you must take the “net value” of all IRD items
included in the decedent's estate. The net value is the total value
of the IRD items in the estate, reduced by any deductions in respect
of the decedent. These are items which are the converse of IRD:
items the decedent would have deducted on his final income tax
return, but for death's intervening. Next you determine how much of
the federal estate tax was due to this net IRD by calculating what
the estate tax bill would have been without it. Your deduction is
then the percentage of the tax that your portion of the IRD items
represents.
Example:
At A's death, $50,000 of IRD items were included in his gross
estate, $10,000 of which were paid to B. There were also $3,000 of
deductions in respect of a decedent, for a net value of $47,000. Had
the estate been $47,000 less, the estate tax bill would have been
$21,150 less. B will include in her income the $10,000 of IRD she
receives. If she itemizes deductions, she may also deduct $4,230,
which is 20% (10,000/50,000) of $21,150.
Please let me know if I can be of assistance to you with regard to
any of the above.