Income in Respect of a Decedent (IRD): Examples and Reporting

Income in respect of a decedent, usually shortened to IRD, is any income the deceased person had earned or had a legal right to receive before death but that never made it onto a tax return during life. Common examples of income in respect of a decedent include a final unpaid paycheck, the taxable balance of a traditional IRA or 401(k), accrued interest on savings bonds and CDs, dividends declared before death, remaining installment sale payments, and a cash-basis business’s outstanding invoices. The person or estate that eventually collects the money reports it as income in the year it’s received, and it keeps the same tax character it would have had in the decedent’s hands.¹

What Makes Something IRD

The defining test is simple: at the moment of death, did the decedent have a right to the income that hadn’t yet been reported on a tax return? If yes, it’s IRD. Under 26 U.S.C. § 691, IRD covers gross income items that were “not properly includible” on the decedent’s return for the year of death or any earlier year.¹ Most people use cash-basis accounting, so they only report income when they actually receive it. Money earned but not yet collected sits in limbo until someone else picks it up.

Two features set IRD apart from other things you might inherit. It keeps its original character, meaning ordinary income stays ordinary and capital gain stays capital gain. And it does not get a stepped-up basis. Section 1014(c) specifically excludes any “right to receive an item of income in respect of a decedent” from the basis adjustment that normally applies to inherited property.² Without that exclusion, an heir could argue the inherited IRA had a new basis equal to its date-of-death value and owed no tax on withdrawals. The exclusion is what keeps IRD taxable.

Unpaid Wages and Compensation

The cleanest example is a paycheck the decedent earned but never received. IRS Publication 559 states that “the entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent.”³ That covers salary, hourly wages, commissions, bonuses declared before death, accrued vacation or sick-leave payouts, and deferred compensation. Whoever collects the payment reports it as ordinary income for the year they receive it.

Deferred compensation paid over time follows the same pattern. Treasury regulations describe a decedent entitled to a large salary paid in five annual installments; the estate collected two installments, then distributed the right to the remaining three to a beneficiary. Each recipient reported the installments they actually got in the year of receipt.⁴ Renewal commissions work the same way. If the right to future commissions was earned during life, each payment is IRD to whoever inherits that right.

Traditional IRAs, 401(k)s, and Roth Accounts

For most estates, the largest IRD item is a retirement account. The taxable balance of a traditional IRA at death (total value minus any nondeductible contributions) is IRD because the decedent never paid income tax on the money going in or the growth inside the account.³ Every distribution a beneficiary takes is ordinary income in the year received. The same treatment applies to a traditional 401(k) balance.

Roth IRAs are usually assumed to be entirely tax-free to heirs, and often they are. Qualified distributions from an inherited Roth stay tax-free. But if the distribution isn’t qualified (for instance, the original owner held the Roth for less than five years), the earnings portion can be taxable, and Publication 559 treats “earnings attributable to the period ending with the decedent’s date of death” as IRD.³ A blanket assumption that an inherited Roth is always tax-free can produce a surprise.

Non-spouse beneficiaries of accounts inherited from someone who died in 2020 or later generally must empty the account within 10 years, which compresses the IRD income into a shorter window and can push the beneficiary into higher tax brackets.⁵ The IRD character of each withdrawal doesn’t change; only the timing does.

Accrued Interest, Dividends, and Savings Bonds

Interest, dividends, and similar investment earnings that accrued during life but hadn’t been paid at death are IRD. That includes accrued interest on a CD or a corporate or municipal bond, and dividends declared by a corporation before death but paid afterward. The question is whether the decedent had a legal right to the payment at death, not whether the cash had moved.

U.S. savings bonds are worth pulling out separately because the interest can build for decades without ever being reported. If the decedent used the cash method and never elected to report the interest annually, the entire accumulation is IRD. Treasury regulations describe a decedent who owned a Series E bond with a co-owner or beneficiary and died before redemption; “the entire amount of interest accruing on the bond and not includible in income by the decedent” is income to the person who receives the bond.⁴

The executor has a choice here that’s worth knowing. They can elect to include all pre-death bond interest on the decedent’s final return. If they do, the heir who eventually cashes the bond reports only the interest earned after death.³ That can be a good move when the decedent’s final-year income is low enough for the interest to be taxed at a lower rate than the heir would face.

Installment Sale Payments

When someone sells property using the installment method and dies before collecting all the payments, the remaining payments are IRD. An installment sale is any sale where at least one payment arrives after the tax year of the sale.⁶ The estate or beneficiary who inherits the right to future payments uses the same gross-profit percentage the decedent established to figure the taxable portion of each installment.³

Character carries over. If the underlying sale would have produced long-term capital gain for the decedent, the gain portion of each installment is long-term capital gain for the beneficiary. This is one of the few IRD situations that can qualify for capital gain rates instead of ordinary income treatment.

Business Receivables and Completed Sales

For a cash-basis sole proprietor, any accounts receivable outstanding at death are IRD. These represent services already performed or goods already delivered during life, with payment still due. When the estate or heir collects on those invoices, the amounts are ordinary business income.

Treasury regulations use a farmer who sold and delivered apples to a canning factory but died before payment arrived; the amount later collected by the executor from that completed sale was IRD.⁴ In the same example, the farmer had been negotiating with a second buyer but hadn’t closed the deal. The executor finished that sale and harvested additional crops to fill it. Only the portion tied to inventory already on hand at death had an IRD component; the newly harvested crops were post-death estate income. The line runs through whether the decedent had a fixed, enforceable right to payment before death.

IRD vs. Estate Income vs. Inherited Property

Three categories often get mixed up, and separating them clears up most of the confusion. IRD is income the decedent earned or had a right to before death. Estate income is income generated by estate assets after death. Inherited property (the house, the brokerage account itself, the car) is corpus.

A rental property makes this concrete. Rent owed for the month before death but collected after death is IRD, because the right to that rent existed while the owner was alive. Rent for the month after death is estate income. The property itself is corpus, and it generally gets a basis step-up to fair market value at death, which is exactly what IRD doesn’t get.

The Section 691(c) Deduction

IRD can be taxed twice: once by the federal estate tax, because the right to the income is part of the gross estate, and again by income tax when the recipient collects it. Section 691(c) partially offsets that by letting the person who reports the IRD income deduct the portion of federal estate tax attributable to that income.¹ The executor computes estate tax twice, once with the net IRD in the gross estate and once without it, and the difference is the amount attributable to the IRD.⁷

For 2026, the federal estate tax exemption is $15,000,000 per person.⁸ Most estates owe no federal estate tax, so the 691(c) deduction produces nothing in those cases. It only matters when the estate is large enough to owe federal estate tax, and it can be meaningful when a large traditional IRA or 401(k) is what pushed the estate over the threshold. The deduction survived the tax reform limits on miscellaneous itemized deductions.

Where IRD Gets Reported

Who reports IRD depends on who receives the payment. If the estate collects it (say, the executor cashes the decedent’s last paycheck), it goes on the estate’s Form 1041 for the year of receipt. If the decedent’s will or a beneficiary designation sends the asset directly to a named person, such as an IRA payable to an adult child, that beneficiary reports the income on Form 1040 as they take distributions.⁹

IRD can stretch across many tax years. Deferred compensation paid in installments creates taxable income each year a payment lands. An inherited IRA paid out over a 10-year window generates IRD income in each year of withdrawal. The character was locked in by the original transaction, and the recipient doesn’t get to reclassify it.

One filing detail catches executors: IRD paid directly to a beneficiary doesn’t flow through the estate’s Schedule K-1. That K-1 mechanism handles post-death estate income the estate distributes out. IRD passing directly to an heir is reported by that heir on their own return. Running it through the wrong path creates mismatches that draw IRS attention.

1
Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents
2
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired from a Decedent
3
Internal Revenue Service. Publication 559 Survivors Executors and Administrators
4
eCFR. 26 CFR 1.691(a)-2 – Inclusion in Gross Income by Recipients
5
Internal Revenue Service. Retirement Topics – Beneficiary
6
Internal Revenue Service. Topic No. 705 – Installment Sales
7
eCFR. 26 CFR 1.691(c)-1 – Deduction for Estate Tax Attributable to Income in Respect of a Decedent
8
Internal Revenue Service. What’s New – Estate and Gift Tax
9
Internal Revenue Service. Topic No. 356 – Decedents