Form 8606 Inherited IRA

[becky5000]

Hi,

My mother passed away in 2023 and I inherited her IRA which had a basis. While going through the TurboTax questions, it asks for the IRA value on 12-31-23. This IRA was transferred to me before the end of the year so the value in her account is zero, but it has a positive value in my account.

a. If I enter zero, it applies all of the remaining basis to her 2023 tax return.

b. If I enter the value in my account at the end of the year, it only applies a small amount to her tax return.

I was of the impression that the basis carried over to my inherited IRA. It is not clear how to answer the 8606 questions. 

There are also 2 other fields called Outstanding Rollovers and Outstanding Recharacterizarions. Do these somehow apply in this case?

She had taken her RMD prior to her passing.

Thanks for your help

[DianeW777]

If you have withdrawn the full amount of the IRA, be you will use Form 8606 to show the basis on your return as of the date of death.  If your mother did take any withdrawals during 2023, before death, she would use her basis from your 2022 tax return (8606, Line 14) on her final return. 

You would then use any remaining basis on your return as the tax free amount and the difference being fully taxable.  

You would use the value for her on the date of death, and for your return you would enter the value as of December 31st.  These numbers should make both returns accurate.  If you are not sure or you don't have the statements, check with the payer for the details.

[fanfare]

The year end amount for inherited IRA is the same wither it is in owner's name (her) or

owner and beneficiary name (you)

You always get only a portion of the basis non-taxable until you close the account.

@becky5000 

[dmertz · Accepted solution]

TurboTax is asking for the year-end value in your own IRAs, not the inherited IRA.  The year-end value in the inherited IRA is to be entered nowhere in TurboTax.  The taxable amount of the distribution fro the inherited IRA must be done on a separate Form 8606 outside of TurboTax and only the the resulting taxable amount provided to TurboTax.  TurboTax can only handle your own Form 8606, not a Form 8606 for an inherited IRA.

You should include the separately prepared Form 8606 with your printed and mailed tax return.

[cabcam]

why can't Turbotax handle inherited IRA 8606?

[dmertz]

Intuit has apparently made the business decision not to accommodate preparing Forms 8606 for inherited IRAs and instead requires the user to prepare the form separately and enter only the resulting taxable amount.

[cabcam]

If I prepare them separately can I still submit through Turbo Tax? 

[cabcam]

But how to you enter the taxable portion of the inherited IRA into turbo tax?

[dmertz]

When you enter a Form 1099-R and indicate that the distribution was from an inherited IRA, TurboTax will present a page that asks you to enter the taxable amount.

[cabcam]

Turbo Tax did NOT ask for the amount of taxable income for the inherited IRA.  It totaled the RMDs from my IRA and the inherited IRA and calculated the taxable amount for mine, but did not ask for, or include, the taxable amount of the inherited  IRA on line 4b of the1040.  Hence my tax is figured incorrectly.

[cabcam]

Can I just enter for the cost basis the sum of my cost basis for last years 8606 and my inherited IRA cost basis from my husbands 8606 from last year?  Then put the sum of the RMD's on line 7.   All the RMDs came to me as he didn't take any out before his death. This would solve the problem.

[dmertz]

When you have indicated that the Form 1099-R being entered is from an inherited IRA, TurboTax will only ask for the taxable amount if you indicate during the entry of this form that the participant had nondeductible contributions.  Note that online TurboTax mistakenly asks if you had nondeductible contribution rather than asking if the decedent whose name you entered had nondeductible contributions, so answer this question as if TurboTax had asked correctly.

If the decedent had no basis in nondeductible traditional IRA contributions, the entire distribution from the inherited traditional IRA is taxable.

[cabcam]

I found out the problem.  As I had assumed ownership of the IRA it is NOT considered an inherited IRA.  The RMD was made to me, not my spouse.  So I did not say yes to the question about an inherited IRA.  When I answered the questions for the 8606 I combined the two cost  basis from last year.  Now everything is correct.

[1965Mosley]

I have an IRA with a basis that was inherited from my mother many years ago.  For about 15 years, I mailed Form 8606 for the IRA with a letter of explanation to the IRS after e-filing.  For tax year 2023, I received a letter from the IRS instructing me to file an amended return that included the Form 8606.  What a waste of time and money considering no calculations changed on the return.

For everything else Turbotax seems to do so well, it would seem like adding provisions for an inherited IRA Form 8606 would not be a big lift.  I'm thinking the number of users with this issue is going to grow with time.

For tax year 2024, I'm going to go back to mailing the form separately and see if I get the amended instruction again.  If yes, I'll start mailing the amended return with the form.

[DianeW777]

It depends. If your situation does not automatically generate Form 8606, you may be able to trigger it yourself. The instructions in the article below will tell you how to trigger a Form 8606.  You may want to try following these steps to eliminate IRS correspondence and/or sending it in later.

• Where do I find Form 8606?