Most people are genuinely appreciative of inheritances. But sometimes it may be too good to be true. While inherited property is typically tax-free to the recipient, this isn’t the case with an asset that’s considered income in respect of a decedent (IRD). If you inherit previously untaxed property, such as an IRA or other retirement account, the resulting IRD can produce significant income tax liability.
What is IRD?
IRD is income that the deceased was entitled to, but hadn’t yet received, at the time of his or her death. It is included in the deceased’s estate for estate tax purposes, but not reported on his or her final income tax return, which includes only income received before death.