IRD Calculator 2026 β Income in Respect of Decedent & Section 691(c) Deduction
Calculate income tax on inherited IRD items (IRA distributions, accrued wages, deferred comp) and the Section 691(c) estate tax deduction. Understand the no-step-up-in-basis rule.
$
IRA/401k balance, accrued wages, deferred comp, etc. $
Total estate tax paid on the full estate $
Full estate value subject to estate tax %
$0
Section 691(c) Deduction
$0
Taxable IRD (after deduction)
$0
Income Tax on IRD
$0
Net IRD After All Taxes
IRD Tax Calculation with Section 691(c)
How IRD and Section 691(c) Work
IRD creates a potential double-tax problem: the same assets are included in the gross estate (estate tax) and then taxed again as income when received. The Section 691(c) deduction is Congress's relief β it lets the income recipient deduct a portion of the estate tax already paid on those assets.
The Formula
Section 691(c) Deduction = Estate Tax Paid Γ (IRD Amount / Total Taxable Estate)
Taxable IRD = IRD Amount β Section 691(c) Deduction
Income Tax = Taxable IRD Γ Recipient's Marginal Tax Rate
Net IRD = IRD Amount β Income Tax β (portion of estate tax allocated to IRD)
Note: IRD gets NO step-up in basis at death (unlike stocks, real estate, etc.)
Taxable IRD = IRD Amount β Section 691(c) Deduction
Income Tax = Taxable IRD Γ Recipient's Marginal Tax Rate
Net IRD = IRD Amount β Income Tax β (portion of estate tax allocated to IRD)
Note: IRD gets NO step-up in basis at death (unlike stocks, real estate, etc.)
Example
$500,000 IRA in a $2,000,000 estate, $200,000 estate tax paid, recipient at 24% rate:
IRD as % of estate: $500,000 / $2,000,000 = 25%
Section 691(c) deduction: $200,000 Γ 25% = $50,000
Taxable IRD: $500,000 β $50,000 = $450,000
Income tax at 24%: $450,000 Γ 24% = $108,000
Combined tax burden: $50,000 estate tax on IRD + $108,000 income tax = $158,000 (31.6% effective)
IRD as % of estate: $500,000 / $2,000,000 = 25%
Section 691(c) deduction: $200,000 Γ 25% = $50,000
Taxable IRD: $500,000 β $50,000 = $450,000
Income tax at 24%: $450,000 Γ 24% = $108,000
Combined tax burden: $50,000 estate tax on IRD + $108,000 income tax = $158,000 (31.6% effective)
Extended
IRD vs Basis-Stepped-Up Assets Comparison
Compare tax treatment of IRD items vs assets that receive a step-up in basis at death
See how IRD items compare to assets that receive a full step-up in basis β a critical distinction for estate planning and beneficiary education.
IRD vs Basis-Stepped-Up Assets β Tax Comparison
| Asset Type | Original Value | Income Tax on Inheritance | Effective Tax Cost |
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Frequently Asked Questions
What is Income in Respect of a Decedent (IRD)?
IRD refers to income that the deceased had a right to receive before death but was not included on their final tax return. Common examples include: traditional IRA and 401k distributions, accrued wages and salary, unpaid bonuses, deferred compensation, accrued interest on savings bonds, installment sale proceeds, and accounts receivable for a cash-basis business. The recipient (estate or beneficiary) must include IRD in their gross income when received.
Does IRD receive a step-up in basis?
No β IRD is a critical exception to the general step-up in basis rule. While most inherited assets get a new basis equal to their fair market value at death (eliminating unrealized gains), IRD items do NOT. IRD retains the decedent's basis, meaning the full amount is subject to income tax when received. This is a major planning point: unlike a brokerage account that steps up, an IRA or 401k is fully taxable to the beneficiary.
What is the Section 691(c) deduction for IRD?
If the IRD items were included in the decedent's taxable estate and the estate paid federal estate tax on them, the IRD recipient gets an income tax deduction under Section 691(c). The deduction equals: (Federal Estate Tax Paid on IRD / Total Taxable IRD in Estate) Γ Estate Tax Paid. This prevents double taxation β the same dollars being taxed by both estate tax and income tax without relief.
How is the Section 691(c) deduction calculated?
The calculation: (1) Determine the portion of the estate tax attributable to IRD items by calculating estate tax with and without the IRD. (2) The deduction = estate tax paid Γ (IRD amount / total estate value). This deduction is taken as a miscellaneous itemized deduction but is NOT subject to the 2% AGI floor β it reduces taxable IRD dollar for dollar.
Who reports IRD on their tax return?
The person who receives the IRD must report it. If the estate receives it, the estate reports it on Form 1041. If the beneficiary receives IRA distributions after the owner dies, the beneficiary reports it on their Form 1040. For inherited IRAs, the custodian issues a Form 1099-R showing the taxable distribution. The Section 691(c) deduction is taken on Schedule A (if itemizing) or reduces income on Form 1041.