- 1). Obtain a copy of the decedent's Internal Revenue Service Form 706: United States Estate Tax Return. Examine the form to see if estate taxes were paid on your IRD assets. If they were, you will probably qualify for a tax deduction.
- 2). Examine the IRS Form 706 and write down the value of the estate and the amount of estate tax paid. To calculate the percentage of tax paid, multiply the amount of the estate by varying percentages until you hit the exact amount of estate tax charged. (Estate tax ranges from approximately 37 percent to 55 percent.)
- 3). Calculate the estate taxes again, leaving out the IRD assets.
Deduct the IRD assets from the amount of the estate, then multiply the resulting amount by the percentage of tax paid to get a total. - 4). Deduct the total of tax paid on the estate minus IRD assets in Step 3 from the total in of estate tax paid in Step 2.
The resulting amount is the amount that may be claimed as an IRD deduction. - 5). Use IRS Form 1040 Schedule A: Miscellaneous Itemized Deductions, and claim the deduction for the tax year that you receive the income.
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