Claiming IRD deduction
Hello,
I am taking RMD from an inherited IRA (profit sharing account that I rolled over to an IRA). In doing my taxes this year, I realized I’m not sure exactly how I claim the IRD deduction.
The approximate situation:
My father died and left a $1.5M profit sharing account as part of a $3M estate. The profit sharing account was divided equally among myself and siblings, $500K each. I’ve rolled my portion into an inherited IRA.
Estate tax was due on $1.5M of estate value; to make it easy let’s say $750K in tax was paid.
Two questions:
1) If I withdraw $10K from the inherited IRA, what can I claim for IRD? In Slott’s book, I believe I read that I can assume *all* estate taxes were due to the profit sharing account, so I inherit $250K worth of deductions for my $500K account, or $5K worth of deductions on my $10K withdrawal. Other sources have implied that I can only attribute half of the taxes due on the estate to the profit sharing account. How do I calculate the *real* deduction amount?
2) How do I get the deduction? I can’t find a form, or any other way, to claim the deduction. Do I just claim some basis in the IRA?
Thanks!
Permalink Submitted by Bruce Steiner on Fri, 2008-02-08 19:05
The deduction is equal to the difference between the actual Federal estate tax and what it would have been absent the retirement benefits (and any other income in respect of a decedent, net of any deductions in respect of a decedent (IRD)).
What are the “other sources” who have implied otherwise?
The attorney handling the estate should be able to calculate the deduction, and whoever prepares the beneficiary’s income tax return should know how to show the deduction (it would be on Schedule A in the case of an individual).
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by [email protected] on Fri, 2008-02-08 19:23
[quote=”[email protected]“]The deduction is equal to the difference between the actual Federal estate tax and what it would have been absent the retirement benefits (and any other income in respect of a decedent, net of any deductions in respect of a decedent (IRD)).
What are the “other sources” who have implied otherwise?
The attorney handling the estate should be able to calculate the deduction, and whoever prepares the beneficiary’s income tax return should know how to show the deduction (it would be on Schedule A in the case of an individual).
Bruce Steiner, attorney
NYC
also admitted in NJ and FL[/quote]
Thanks — that was my understanding of how the calculation should be done, but the attorney handling the estate implied it was a more complex calculation.
Permalink Submitted by Bruce Steiner on Fri, 2008-02-08 19:49
It may have been complicated. There may have been other IRD items (such as accrued interest on bonds). There may have been deductions in respect of a decedent (such as state income taxes owed for the year of death), with are netted against the IRD. There may have been more then one recipient of the IRD (in which case the deduction is prorated). But if it’s complicated it’s the lawyer’s problem to figure it out.