Inheritances are not taxable income (Pub 525). However, if a payment received from an estate would have been taxable income to the decedent, it's taxable income to the heir. Traditional IRAs are another example.What Phil said. Normally (overly simplistic explanation) if you receive "stuff" from an estate it's not income and not subject to income tax. However, as Phil notes, items that would have been taxable as income to the decedent (such as a distribution from an IRA), are taxable income to the heir/beneficiary when they receive it.In other words, IRD is "stuff from a dead person" that is subject to INCOME tax, when normally "stuff from a dead person" is not.The "deduction" as noted, is a deduction of ESTATE taxes paid that are attributable to the IRD item, and that deduction reduces INCOME tax liability. In this case it appears there was no estate tax liability, so there's no deduction for income tax purposes.That's a very simple explanation that glosses over a lot of detail, so Circular 230 Disclaimer - if you rely on this to fill out tax returns you're an idiot, I could be clueless, talk to a real tax advisor, and the IRS won't care what someone on the intermawebz told you if you screw up.-synchronicity
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