1099R from death benefits

[Axis1967]

Received a 1099R Form due to distributions from the retirement account of the deceased person as a beneficiary of the estate. Should the taxable amount be reported on Turbo Tax if the amount of assets inherited from the deceased person are well below the Federal Estate Exemptions? If I input the 1099R amount into Turbo Tax, it increases my tax liability. Box #7 on the 1099R form has a Code of 4 (indicating distribution is related to a death benefit. 

[RobertB4444 · Accepted solution]

Yes. 

When you inherit something you don't have to pay tax on it so long as the person who died paid tax on it while they were alive.  In this case you are inheriting a retirement account that they did not pay tax on so you - as the person inheriting it - will be paying taxes on the money.

[Axis1967]

Is this only related to the deceased not paying tax on pre-tax contributions from income or IRA contributions that reduced their taxable income while they were alive? So all IRA amounts distributed to beneficiaries are deemed as taxable income in the year distributed? 

[RobertB4444]

Yes.  And yes.

[Axis1967]

THANK YOU. Am I correct on assuming that any capital gains the deceased person had on assets is not taxable since the value of inherited assets is valued at the time of death?

[ColeenD3 · Accepted solution]

Yes, if you sell relatively soon after, there probably won't be a gain. However, you still have to report it.