diff --git a/compiler/frontend/src/org/jetbrains/kotlin/cfg/ControlFlowInformationProvider.kt b/compiler/frontend/src/org/jetbrains/kotlin/cfg/ControlFlowInformationProvider.kt
index 90fcc7d9327..618cedcc757 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/cfg/ControlFlowInformationProvider.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/cfg/ControlFlowInformationProvider.kt
@@ -32,6 +32,7 @@ import org.jetbrains.kotlin.idea.MainFunctionDetector
 import org.jetbrains.kotlin.lexer.KtTokens
 import org.jetbrains.kotlin.psi.*
 import org.jetbrains.kotlin.psi.psiUtil.containingClassOrObject
+import org.jetbrains.kotlin.psi.psiUtil.forEachDescendantOfType
 import org.jetbrains.kotlin.resolve.*
 import org.jetbrains.kotlin.resolve.BindingContext.*
 import org.jetbrains.kotlin.resolve.bindingContextUtil.isUsedAsExpression
@@ -97,6 +98,7 @@ class ControlFlowInformationProvider private constructor(
         }
 
         markStatements()
+        markAnnotationArguments()
 
         markUnusedExpressions()
 
@@ -799,6 +801,21 @@ class ControlFlowInformationProvider private constructor(
         }
     }
 
+    private fun markAnnotationArguments() {
+        when (subroutine) {
+            is KtAnnotationEntry -> markAnnotationArguments(subroutine)
+            is KtAnnotated -> subroutine.annotationEntries.forEach { markAnnotationArguments(it) }
+        }
+    }
+
+    private fun markAnnotationArguments(entry: KtAnnotationEntry) {
+        for (argument in entry.valueArguments) {
+            argument.getArgumentExpression()?.forEachDescendantOfType<KtExpression> {
+                trace.record(USED_AS_EXPRESSION, it, true)
+            }
+        }
+    }
+
     private fun checkIfExpressions() = pseudocode.traverse(TraversalOrder.FORWARD) { instruction ->
         val value = (instruction as? InstructionWithValue)?.outputValue
         for (element in instruction.owner.getValueElements(value)) {
diff --git a/idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt b/idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt
new file mode 100644
index 00000000000..8ee9304aa7f
--- /dev/null
+++ b/idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt
@@ -0,0 +1,25 @@
+private const val <caret>TAG = "Tagged"
+
+annotation class InAnn(val value: String)
+
+@InAnn(TAG) class AnnHolder
+
+@InAnn(value = TAG) class AnotherAnnHolder
+
+@InAnn("This is $TAG") class ComplexAnnHolder {
+    @InAnn("That is $TAG") fun foo() {}
+}
+
+@InAnn("This is also $TAG") fun bar() {}
+
+fun baz(@InAnn("This is $TAG too") x: Int) {}
+
+@Target(AnnotationTarget.EXPRESSION)
+@Retention(AnnotationRetention.SOURCE)
+annotation class ExprAnn(val value: String)
+
+val inProperty = TAG
+
+fun foo() {
+    val x = @ExprAnn(TAG) inProperty
+}
\ No newline at end of file
diff --git a/idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt.after b/idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt.after
new file mode 100644
index 00000000000..2ee4102b508
--- /dev/null
+++ b/idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt.after
@@ -0,0 +1,23 @@
+annotation class InAnn(val value: String)
+
+@InAnn("Tagged") class AnnHolder
+
+@InAnn(value = "Tagged") class AnotherAnnHolder
+
+@InAnn("This is Tagged") class ComplexAnnHolder {
+    @InAnn("That is Tagged") fun foo() {}
+}
+
+@InAnn("This is also Tagged") fun bar() {}
+
+fun baz(@InAnn("This is ${} too") x: Int) {}
+
+@Target(AnnotationTarget.EXPRESSION)
+@Retention(AnnotationRetention.SOURCE)
+annotation class ExprAnn(val value: String)
+
+val inProperty = "Tagged"
+
+fun foo() {
+    val x = @ExprAnn() inProperty
+}
\ No newline at end of file
diff --git a/idea/tests/org/jetbrains/kotlin/idea/refactoring/inline/InlineTestGenerated.java b/idea/tests/org/jetbrains/kotlin/idea/refactoring/inline/InlineTestGenerated.java
index 38f149ce343..78bea31475f 100644
--- a/idea/tests/org/jetbrains/kotlin/idea/refactoring/inline/InlineTestGenerated.java
+++ b/idea/tests/org/jetbrains/kotlin/idea/refactoring/inline/InlineTestGenerated.java
@@ -521,6 +521,11 @@ public class InlineTestGenerated extends AbstractInlineTest {
             runTest("idea/testData/refactoring/inline/inlineVariableOrProperty/ifInQualifiedExpression.kt");
         }
 
+        @TestMetadata("InAnnotation.kt")
+        public void testInAnnotation() throws Exception {
+            runTest("idea/testData/refactoring/inline/inlineVariableOrProperty/InAnnotation.kt");
+        }
+
         @TestMetadata("InFunctionLiteral.kt")
         public void testInFunctionLiteral() throws Exception {
             runTest("idea/testData/refactoring/inline/inlineVariableOrProperty/InFunctionLiteral.kt");