What is an “income in respect of a decedent”?

In Indiana, “income in respect of a decedent” (IRD) is an amount of money that the deceased was entitled to receive, but never received before their death. IRD includes wages, commissions, bonuses, certain retirement income, interest, and property payments, among other sources of income. IRD also applies to beneficiaries of an estate or trust who may be entitled to receive income on behalf of the deceased. In Indiana, inheritance taxes are imposed on all IRD according to the provisions set forth in the Indiana Code. Under Indiana state law, IRD must be reported on the Indiana Inheritance Tax Return and is taxable to the amount of 15 percent of the total value of the IRD. However, IRD that is payable to a surviving spouse, lineal descendant, brother or sister, parent, mother-in-law, father-in-law, or grandparent is not taxable under Indiana inheritance law. Any IRD that is taxable must be reported on the Inheritance Tax Return and is subject to both state and federal income tax laws. IRDs are often subject to federal estate tax. All IRDs that are payable to any estate beneficiary or estate are subject to federal estate tax and must be reported on Form 706. The IRS also allows certain deductions for IRDs, such as for expenses related to the decedent’s estate. In Indiana, once the IRS approves an estate’s Form 706, the estate can receive a tax credit for the taxes paid through the inheritance tax return. This tax credit is used to offset the amount of the estate’s federal estate tax liability.

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