How is cost basis for an inherited IRA tracked and reported ?

[dmertz]

The beneficiary is responsible for tracking any basis in nondeductible traditional IRA contributions in the inherited IRA.  The beneficiary would need to obtain the basis information from the executor or personal representative of the decedent's estate.  The beneficiary must use a Form 8606 outside of TurboTax to calculate the nontaxable and taxable amounts of the distributions made during the year, then enter the taxable amount into TurboTax.  The Form 8606 prepared outside of TurboTax should be included with the printed and mailed tax return.  The remaining basis shown on line 14 of this Form 8606 will carry forward to line 2 of the next year's Form 8606 prepared outside of TurboTax.

If the beneficiary is the surviving spouse of the decedent and the surviving spouse transfers the inherited IRA to their own IRA or assumes ownership of the IRA, the basis becomes the surviving spouse's own basis.  In TurboTax you would indicate to TurboTax that you made nondeductible traditional IRA contributions, then click the EasyGuide button and TurboTax will allow you to indicate the amount of basis inherited from the deceased spouse.

[fanfare]

You must use a separate Form 8606 calculation to determine the taxable portion using the basis in the inherited IRA.

The problem is the software won't enter the correct Name:

And it won't handle the case where you too have a basis in your IRA and took a distribution.
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you can calculate the taxed portion on Form 8606 yourself to discover the proper amount for 1099-R box 2a.
you can start a separate tax return in desktop TurboTax and use that one to calculate the Inherited IRA taxed portion.
Then you have to fudge up a 1099-R that produces those amounts on Form 1040.
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Do you have the correct taxable amount on Line 4b?
E-file your return, don't file on paper.

After it is ACCEPTED ,
get Form 1040-X from IRS website and mail it in with your 8606, which you can also get in fillable PDF.
Note: since you are not changing any dollar amounts on your amended tax return, you can leave all the lines 1-23 EMPTY.
The names on 8606 should be "<owner> and <your name> BENE" or Beneficiary if it fits, and your SSN.

Part III explanation: "didn't include Form 8606 with e-File".
You will have to mail it so this does not use up your one 1040-X e-File.

In a few months to a year, you will get an acknowledgement from the IRS.
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you can calculate the taxed portion on Form 8606 yourself to discover the proper amount for 1099-R box 2a.
you can start a separate tax return in desktop TurboTax and use that one to calculate the Inherited IRA taxed portion.

@uwhusky78