Reply To: QCD and estate tax deduction

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#4953
Alan S.
Participant

Yes, since a QCD is not included in gross income, the IRD deduction cannot be taken for QCD amounts and this operates in the same manner as if the inherited IRA included basis or was an inherited Roth IRA. Of course, this is moot unless you still itemize given the new higher standard deduction.

As for the math, it would be more direct to figure the IRD deduction by just reducing the gross distribution by the amount of the QCD and plugging that figure into the formula outlined in Pub 559. I’m not sure whether that would generate a different figure than your proposed 4.4% reduction or not. Of course, once you have recovered the full IRD deduction, the deduction ends even if value remains in the inherited IRA.

It is interesting to note how the QCD adjustment with respect to the deduction differs from NOT doing a QCD, being taxed on the distribution and then making an itemized taxable donation. The latter method would not reduce the IRD deduction, while the QCD would. The reduction of the distribution by the QCD amount is the same as if there was inherited basis in the IRA except that the QCD is triggered by you, while the basis was contributed by the decedent.

Here is an interesting article from Kitces regarding the IRD deduction and in the middle of it he touches on inherited IRA RMDs and the effects of gains or losses on the IRD Deduction.

https://www.kitces.com/blog/understanding-the-irc-section-691c-income-in-respect-of-a-decedent-ird-deduction-for-the-beneficiary-of-an-inherited-ira/

  • This reply was modified 1 year, 9 months ago by Alan S..