can basis in traditional IRA reduce taxation of a distribution from an inherited IRA

[taxiowa]

No, I don't believe you can use IRA basis for inherited IRA.  The only way I have found to keep it from happening is to go into the 8606-T and override line 10 of part 1 to read 0.00000%.  You have to ignore override on e-filing but basis is then not attributed to inherited IRA distribution.

[qbteachmt]

From Pub 590-B:

"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."

[rbynaker]

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@qbteachmt wrote:

From Pub 590-B:

"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."

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And, the last time I looked into this, that will prevent you from e-filing because you can't have two taxpayer 8606 forms or two spouse 8606 forms in ProSeries, just one of each.

Great answers from the two folks above.

At this point it's fairly unlikely for someone to inherit an IRA with basis (certainly not impossible).  I have clients in their 50s & 60s with IRA basis so I anticipate this is going to be a much bigger problem 10-20 years down the road.  When you inherit an IRA, how do you know if it has basis?  You hope that the deceased had a friendly and helpful tax preparer.

Rick