Inherited IRA and Estate Tax

[WJB57]

In 2000 my wife inherited a traditional pretax IRA, along with other
assets. The IRA was modest ($12,000 in value) and we are planning to
make a complete distribution of the IRA this year (we are in a low tax
bracket for one year only, and this makes sense for us). I recently
read that estate taxes paid can be used as an income tax deduction
against the IRA income I will realize this year.

>From what I read, I must allocate the estate taxes to the assets
inherited. Is this correct? And how would I have allocated the
estate tax to stocks and real estate that was appraised and received
at FMV?

More importantly, I am not sure we have any estate tax to use in this
situation. State tax of $5634 was assessed on the estate. The
Federal return form 706 (July 1999 version) shows a gross estate tax
on line 10 of $226,000 which is completely offset by the unified
credit and the state taxes paid. Even if there was no Federal estate
tax paid, does the State tax paid qualify?

Thanks.

Andy

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[D. Stussy]

"WJB57" <adwa...@hotmail.com> wrote in message
news:22962fd8-1312-4b25...@j9g2000vbp.googlegroups.com...

> In 2000 my wife inherited a traditional pretax IRA, along with other
> assets. The IRA was modest ($12,000 in value) and we are planning to
> make a complete distribution of the IRA this year (we are in a low tax
> bracket for one year only, and this makes sense for us). I recently
> read that estate taxes paid can be used as an income tax deduction
> against the IRA income I will realize this year.
>
> >From what I read, I must allocate the estate taxes to the assets
> inherited. Is this correct? And how would I have allocated the
> estate tax to stocks and real estate that was appraised and received
> at FMV?

Not quite correct. The marginal estate tax attributable to all items that
are receivables constituting income must be allocated across them. Assets
which do not represent IRD are allocated zero.

> More importantly, I am not sure we have any estate tax to use in this
> situation. State tax of $5634 was assessed on the estate. The
> Federal return form 706 (July 1999 version) shows a gross estate tax
> on line 10 of $226,000 which is completely offset by the unified
> credit and the state taxes paid. Even if there was no Federal estate
> tax paid, does the State tax paid qualify?

No.

As there's no net estate tax after the unified credit, there's no tax to
allocate.

[WJB57]

>
> > More importantly, I am not sure we have any estate tax to use in this
> > situation. �State tax of $5634 was assessed on the estate. �The
> > Federal return form 706 (July 1999 version) shows a gross estate tax
> > on line 10 of $226,000 which is completely offset by the unified
> > credit and the state taxes paid. �Even if there was no Federal estate
> > tax paid, does the State tax paid qualify?
>
> No.
>
> As there's no net estate tax after the unified credit, there's no tax to
> allocate.

Thanks - I was afraid that was the answer......