Income in Respect of a Decedent (IRD)

Income in Respect of a Decedent (IRD)

When a taxpayer dies, certain income they were entitled to but had not yet received is known as Income in Respect of a Decedent (IRD). Due to accounting rules, this income isn’t reported on the decedent’s final tax return but is still taxable.

Key Points:

  • Definition: IRD includes income the decedent was entitled to before death but didn’t receive (e.g., unpaid wages).
  • Accounting Method:
    • Cash-method taxpayers: All accrued income at death is IRD.
    • Accrual-method taxpayers: Only income accrued because of death is IRD.
    • Contingent income claims at death are always IRD.

Tax Rules for IRD:

  1. If the estate receives IRD, it reports it as gross income.
  2. If the right to receive IRD is distributed through inheritance, the recipient must report it.
  3. If the IRD passes directly to someone outside the estate, that person reports it.
  • IRD is taxed in the year it is received, and the character of the income remains the same (e.g., capital gain stays a capital gain).
  • Recipients can deduct any estate tax paid on the IRD, but only in the year the income is included.

Deductible Expenses:

Either can claim certain unpaid deductible expenses at the time of death:

  • The estate, or
  • The person who inherited property subject to the liability.

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