Income in Respect of a Decedent

Income In Respect of a Decedent (“IRD”) are items of income that a decedent received, or was entitled to receive, after his or her death. This income is not reported on the decedent’s final income tax return, but is reported either on the income tax return of the decedent’s estate or on the income tax return of the person to whom the estate distributed the right to receive the item of income.

Example: Alicia is owed $2,000 of wages at her death, and payment is made to her estate one week later. These wages are IRD. Alicia’s estate, not Alicia personally, must include that wage income in its income for the year.

IRD retains the same character in the hands of the ultimate recipient as it would had it been paid to the decedent prior to his or her death.

Example: At the time of his death, Harold had received the 9th of 12 monthly installment payments on a contract for a prior sale of investment real estate. Those payments had been treated as capital gain by Harold. Following Harold’s death the right to receive the remaining three installment payments was transferred, as directed by Harold’s will, to Harold’s son. When Harold’s son receives those three payments he, too, should treat the income as capital gain.

Items of IRD do not receive a step-up in basis upon the decedent’s death.

The following are other examples of IRD:

  1. balances in individual retirement accounts and qualified retirement plans as of the decedent’s death (i.e., IRA and 401(k));
  2. accrued interest on bonds owned by the decedent;
  3. uncollected installment obligations;
  4. accrued dividends;
  5. accounts receivable in existence at death that were collected after death;
  6. receipt of sale proceeds after death relating to a transaction completed before death; and
  7. a deceased partner’s distributive share of partnership income to the date of his death and payments made by a partnership in liquidation of the deceased partner’s interest which are considered to be a share of partnership income.