The Royals have been heavily linked with the former AC Milan striker but McDermott says the rumour has simply come from the mouth of an agent.
"I know exactly where that has come from... I was sat in Tallinn with (director of football) Nick Hammond and one of our scouts (last week)," McDermott told getreading.
"We were introduced to an Italian agent and we said hello. We started talking about numerous players and he said, 'I can get you Inzaghi.'
"I said, 'Okay, that's good, he's old isn't he?'
"I told him that we wouldn't be going down that road and I was happy with the players that I have and we carried on talking.
"That translated as, 'we've offered him a contract worth about £960,000'."