Income in Respect of a Decedent (IRD)

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Income in Respect of a Decedent (IRD)

What is IRD?

Income in respect of a decedent (IRD) is untaxed income that a person had earned or had a right to receive before they died but which was not received until after death. The beneficiary or entity that receives those amounts is generally responsible for reporting and paying tax on them.

IRD is defined in Internal Revenue Code Section 691.

Common sources of IRD

IRD can arise from many types of payments that were due to the decedent but were unpaid at death, including:
* Uncollected wages, salaries, bonuses, commissions, vacation or sick pay
* Retirement plan distributions (traditional IRAs, 401(k)s, pension payments)
* Accrued interest and dividends
* Deferred compensation and stock option payouts
* Rent receivable, accounts receivable, and proceeds from sales where payment occurred after death
* Gains from property sales treated as occurring before death but paid after death

How IRD is taxed

  • IRD is taxed to the recipient in the same manner it would have been taxed had the decedent received it during life. Ordinary income items remain ordinary income; capital gains retain capital-gain character.
  • There is no step-up in basis for amounts treated as IRD.
  • The beneficiary reports IRD on their personal income tax return for the year the payment is received.

IRAs, 401(k)s and RMDs

  • Distributions from tax-deferred retirement accounts passed to beneficiaries are common IRD. Beneficiaries pay income tax on distributions when they receive them.
  • Beneficiaries must follow the applicable required minimum distribution (RMD) and payout rules for inherited retirement accounts. Spouses who are sole beneficiaries have special options—such as rolling the account into their own IRA—which can change RMD timing and tax outcomes.
  • Nonspouse beneficiaries and various account types are subject to specific rules and timelines that affect when distributions must be taken and taxed.

Estate tax interaction and deduction

  • IRD is included in the decedent’s estate for estate tax purposes, which can create overlapping tax exposure (estate tax at the estate level and income tax when the beneficiary receives the IRD).
  • If estate tax is attributable to the IRD amount, the beneficiary may be allowed a deduction on their income tax return for the estate tax paid that is allocable to the IRD (see IRC Section 691(c)). This helps mitigate double taxation in many cases.
  • Estate planning tools (trusts, credit-shelter planning, etc.) are commonly used to manage estate-tax exposure and the timing/receipt of IRD.

Reporting and practical points

  • Report IRD on the tax return for the year in which you (the beneficiary) actually receive the payment.
  • Keep documentation showing the nature of the payment (e.g., statement showing the distribution came from an inherited IRA) and any estate-tax allocation tied to that IRD.
  • Consult tax or estate-planning counsel for complex situations—especially large estates, retirement-account inheritances, or arrangements involving trusts—because election choices and timing can materially affect taxes.

Inheritance vs. IRD

  • Inheritance generally describes property or assets bequeathed to you; it often receives favorable tax treatment (estate, not income, tax implications for many inherited assets).
  • IRD specifically refers to income items that were taxable to the decedent if received during life but were not paid until after death. Unlike many inheritances, IRD is taxable to the recipient as income.

Key takeaways

  • IRD is untaxed income owed to a decedent at death and taxed to the beneficiary when received.
  • Tax treatment follows the character of the income (ordinary vs. capital gain); there is no step-up in basis for IRD.
  • Beneficiaries may be able to deduct estate tax attributable to IRD to reduce double taxation.
  • Retirement accounts are a frequent source of IRD; RMD and beneficiary rules significantly affect timing and tax liability.

Bottom line

When you inherit amounts that represent income the decedent would have reported if alive, treat those receipts as taxable income in the year you receive them. Understand the origin of the payment, follow beneficiary and RMD rules for retirement accounts, and consider the potential estate-tax interactions and available deductions to minimize double taxation. Consulting a tax or estate-planning professional is advisable for sizable or complicated inheritances.