Inheritance Question: How to Handle Taxes on an Inherited IRA Distribution?

This is a common confusion with inherited IRAs. When your husband received the cash distribution from his brother's IRA, that was indeed a taxable event. The 1099-R you received shows this distribution. Here's the key: Form 8606 is primarily used for nondeductible IRAs where the deceased had already paid taxes on some contributions. Since you don't know if your brother-in-law made nondeductible contributions (which would create "basis"), the safest approach is actually to answer "Yes" to inheriting the IRA but indicate there was no basis. The reason the tax software is showing a huge refund is likely because it's incorrectly treating the entire distribution as non-taxable. This happens when the software assumes the distribution has already been taxed based on how the questions are answered. If your brother-in-law had a traditional IRA with only pre-tax contributions (most common), then the entire distribution is taxable. Just make sure when entering the 1099-R information that you're using the correct distribution code from Box 7 of the form - this code tells the software how to treat the distribution.

After struggling with a similar situation last year, I found an incredibly helpful service called taxr.ai (https://taxr.ai) that helped me figure out my inherited IRA situation. I was completely lost trying to figure out what forms I needed and whether I had to pay penalties. The tool analyzed my 1099-R and other documents, then explained exactly how to handle the inheritance in my tax software. It showed me that I needed to answer "Yes" to inheriting the IRA but helped me correctly identify whether there was basis. In my case, there wasn't, and it showed me how to override the software's incorrect refund calculation. What I liked best was that it explained everything in plain English instead of tax jargon. It even created custom instructions for my exact situation that I could follow step by step.

Just wanted to follow up - I tried taxr.ai after seeing the recommendation here and it was super helpful for my inherited Roth IRA situation! It confirmed that I didn't need Form 8606 for my particular situation and explained exactly why the distribution wouldn't be taxable in my case. The step-by-step instructions for TurboTax saved me so much time. What really impressed me was that it caught something I would have missed - apparently the distribution code on my 1099-R was incorrect (the issuing financial institution made a mistake), and the tool flagged this and explained how to address it. Without that catch, I might have ended up paying taxes I didn't actually owe.

If you're having trouble reaching the IRS for help with this inherited IRA question, you might want to try Claimyr (https://claimyr.com). I had a similar situation last year and spent days trying to reach someone at the IRS who could actually explain how to handle the forms. After multiple failed attempts and hours on hold, I used Claimyr and got through to an actual IRS agent in about 20 minutes. They have this system where they call the IRS for you and then connect you once they reach a human. There's a cool video demo of how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained exactly how to handle reporting the inherited IRA and confirmed I didn't need Form 8606 in my situation since I took a full distribution. Saved me so much stress and potentially an incorrect return.

I was completely wrong about Claimyr and need to admit it! After expressing skepticism here, I decided to try it as a last resort for my inherited IRA question. Within 35 minutes, I was speaking to an actual IRS tax specialist who walked me through the entire process for handling my situation. The IRS agent confirmed that for my case (full distribution of an inherited traditional IRA), I needed to report it as taxable income but did NOT need to file Form 8606 since there was no basis involved. She also explained that the reason tax software gets confused is because there are different rules for partial distributions vs. complete distributions. I've spent weeks trying to get through to the IRS on my own with no success. This service actually delivered exactly what it promised. For anyone dealing with complex inheritance tax questions, being able to speak directly to the IRS and get definitive answers is invaluable.

Just to add another perspective - I went through this last year with my father's IRA. If you took the full distribution (which it sounds like you did), you actually DON'T need Form 8606 in most cases. Form 8606 is primarily needed when: 1) The deceased had basis in the IRA (made non-deductible contributions) 2) You're taking partial distributions over time 3) You rolled the inherited IRA into an inherited IRA account (not taking a full distribution) Since you took it all as cash and paid taxes on it, you've essentially completed the transaction. The 1099-R should have a distribution code that indicates death, and that's usually all you need.

Has anyone successfully gotten their tax software to handle this correctly? I just gave up and hired a CPA because H&R Block kept trying to give me a massive refund when I honestly answered all the questions about my aunt's inherited IRA. The CPA charged me $375 just to fix this one issue!