Income in respect of a decedent IRD Calculation

By | March 15, 2015

What is Income in respect of a decedent IRD and how to calculate?

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 net income, although you may also be entitled to an IRD deduction on account of them. This can happen when a spouse dies in the middle of a tax year


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).

Income in respect of a decedent IRD Calculation

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 during the same tax year.


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. Although the deduction helps, it does not totally fix the problem of income in respect to decedent (IRD).


Calculate IRD Deduction

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.


Calculating Tax from Income in respect of a decedent IRD Calculation

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.