Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated July 29, 2026. Quick answer: It does not, and no state’s law changes that. IRC §1014(c) provides that the section “shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691.” Traditional IRAs, 401(k)s, annuities and unpaid deferred compensation are all income in respect of a decedent. Community property status is irrelevant to them.
Get the inherited-account decision right the first time
Deciding when to take money out of an inherited account is a tax question as much as a rules question, and an adviser can price the withdrawal schedule against the rest of your income before a deadline sets the timing for you.
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What gets a new basis and what does not
| Asset | New basis at death? |
|---|---|
| Taxable brokerage account | Yes |
| Real estate | Yes |
| Traditional IRA or 401(k) | No — §1014(c) |
| Annuity | No |
| Unpaid deferred compensation | No |
Which reverses the usual instinct about what to spend first. If a taxable account will take a new basis at death and a traditional IRA never will, then spending the taxable account first — and preserving the IRA — wastes the one benefit death actually confers. The asset that gets forgiven is the one people are most reluctant to touch.
This bites hardest where the IRA holds something people think of as a physical heirloom. Precious metals inside a traditional IRA are covered by the same rule — the metal gets no new basis at death, even though identical metal held personally would. How to get out of a gold IRA covers the routes and what each one costs.
Savings bonds sit in a different place again: they are not income in respect of a decedent in the same way, and the accrued interest has its own reporting choice — what happens to savings bonds you inherit. If the account itself is the obstacle rather than the tax, reaching a TreasuryDirect account after a death is the practical problem to solve first.
The partial offset, and it is genuinely partial
§691(c) allows a deduction for estate tax actually attributable to the income in respect of a decedent. Since the overwhelming majority of estates pay no estate tax at all, there is usually no such tax and therefore no deduction. The relief exists for large estates; for everyone else it is nothing.
This is also why a community property double step-up is worth so much less to a household whose wealth sits mostly in retirement accounts than to one holding a large taxable portfolio.
Sources
IRC §1014(a), (b)(6), (c) and (e); Treas. Reg. §1.1014-1(a) and §1.1014-2(a)(5); IRC §2040(b); IRC §691. State law as cited on each page from the state’s own codified statutes. The nine-state list is attributed to IRS Internal Revenue Manual 25.18.1.2.3 and Publication 555 rather than to fifty separate statutes. All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.