FORM 8606

[TAXMAN]

Help as I seem to have a mind blank. form 8606 line 6. TP still had basis in nondeductible IRA. TP deceased in middle of 2019 and IRA went to 3 heirs who set up beneficiary IRA's. THe question is for line 6 do I show FMV of IRA at death and pass the remainder of unused basis to heirs? I do not know why I can't get this.

[jklcpa]

Non-spouse beneficiary's basis in IRA is that of the decedent.  Below is quote from Pub 590-B:  Link to pub: https://www.irs.gov/publications/p590b#en_US_2019_publink1000230538
 

Quote

IRA with basis.

If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you can't combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions.

 

[TAXMAN]

Thank you, Therefore it would appear to FMV at DOD for line of that form.

 

[Lion EA]

No. Retirement funds do NOT get a step up/down in basis at DOD but continue as before as they would for the decedent if he were alive. (I think; my brain as reached the fried stage; too many dates to remember now.)

[jklcpa]

57 minutes ago, TAXMAN said:

Thank you, Therefore it would appear to FMV at DOD for line of that form.

 

NO, beneficiary would pickup any unused basis from the decedent's 8606.  In the case you are working on there are 3 beneficiaries, so if each got an equal 1/3 share of the IRA, each would get to use 1/3 of the decedent's basis on their own 8606s to determine the nontaxable and taxable portions.

Edited March 18, 2020 by jklcpa

[TAXMAN]

Judy I may not understand. TP was taking IRA up to date of death(92 age).  her prior 8606 line 2 amount   was 3000. When I get to line 6 is where I am stuck There would be none to tp since it asking for 2019 value. the IRA has gone to heirs. What am I not seeing?

[jklcpa]

Sorry, I thought you were working on a beneficiary's return, not that of the decedent.

I looked around for this and didn't find much except Ed Slott's site was the only place that addressed this specifically. I posted the quote from it below. As you had originally asked, I'd enter the FMV at death on line 6 because that whole section from line 6 through 9 is to arrive at the value of the IRA(s) before the current year's distributions without returned contribs, recharacterizations, or conversions.   It's function is to arrive at the ratio that the prior year's unused basis represents compared to the amount on line 9, and that percentage is the nontaxable portion of the current year's distributions, in other words the basis used up in 2019. 

The amount on line 14 of the decedent's 2019 form 8606 is the remaining basis that goes to the 3 beneficiaries.

Here's is the quote from Ed Slott's page concerning this:

Quote

Carry Over 8606 Basis on Decedent IRA - Can a beneficiary carry over their portion of an IRA basis from the original funder?

Yes, they can. This is addresssed on p 18 of Pub 590. A non spouse beneficiary cannot combine the inherited IRA basis with any basis they may have in their owned IRA account. If they have both such IRA accounts and take distributions from both, they would have to file a separate 8606 for each one. Anyone who has a TIRA balance that had after tax rollovers or non deductible contributions at any time will have unrecovered basis when the owner passes. The 8606 instructions do not correctly address this because the year end value is indicated as determining the basis factor with no exception for the year of death. But in the year the owner passes, the date of death value should be used to recover basis for the owner, and the year end value should be used to apply any remaining basis to beneficiary distributions. Using the year end for both will result in basis not being applied in proportion to the amount of the distribution each party took. Who knows how the IRS resolves this mess when it occurs? Probably by the luck of the draw. Of course, a spousal beneficiary who assumes ownership can then combine inherited basis with basis on their own IRAs. Also, if there are multiple beneficiaries, they must receive basis in porportion to their share of the IRA at date of death. They should not attempt to reapportion basis per some other method later on.

 

[TAXMAN]

Thank you. I think now I can move on. The mess the deceased left us with.