Inherited IRA Estate Tax Deduction Question
I inherited a nonspousal IRA is which the estate paid taxes on the IRA. I will be taking the estate tax deduction on my tax return. The question is, if I am taking only a RMD every year, am I only applying a portion of the estate tax deduction to the income I take every year forward, or do I deduct the entire estate tax deduction in the year the IRA was received by me? What IRS regs can I turn to for clarification on this issue?
Permalink Submitted by Alan Spross on Tue, 2008-08-19 22:07
Your IRD deduction is taken ratably as you take distributions from the IRA, not when you have it re registered as an inherited IRA. You must be able to itemize deductions each year and if you cannot, the pro rated IRD deduction for that year’s distribution is lost. The good news here is that the deduction is NOT subject to the 2% of AGI misc deduction floor, but the bad news is that this deduction might increase your exposure to AMT, if any.
The amount of the deduction is rather complex, and you should be able to get some help in the computation from the accountant who prepared the 706. Refer to IRS Pub 559, “Estate Tax Deduction” for more detail.
Permalink Submitted by Bruce Steiner on Wed, 2008-08-20 00:16
Most estate tax returns are prepared by lawyers. The lawyer who prepared the estate tax return should be able to explain the deduction to the accountant who will prepare the income tax returns, and the accountant should know how to claim it on the income tax returns.