Upon the death of a taxpayer, a personal
representative (e.g., estate executor/executrix)
takes charge of the decedent's property.
This person may be named in the decedent's
will or appointed by the court if there
is no will. The duties of the representative
include collecting all of the decedent's
property, paying creditors, and distributing
assets to the heirs. In addition, the
representative is responsible for filing
various tax returns and seeing that the
taxes owed are properly paid. This section
will provide an overview of some the commonly
encountered issues to be resolved upon
the death of a taxpayer.
These and other issues involving a deceased
taxpayer and the taxpayer's estate can
be very complex. Please contact this office
That Need To Be Filed
The following are the basic returns
that may need to be filed following a
taxpayer's death, dependent on the filing
requirements of each:
Form 1040 - File the decedent's
final return as usual on Form
1040, 1040A, etc.
Form 1041 - This is the
tax return of the estate--used
to report income on the assets in
the estate, including sales of property.
Form 706 - Used to compute
the tax on the value of the assets
in the estate and is required if
the gross estate is greater than
the taxpayer's estate tax exemption.
Unless reduced because of pre-death
gifts, the estate tax exemption
for 2000 and 2001 is $675,000 and
increases to $1,000,000 for 2002
and 2003 (the exemption amount changes
periodically). Sometimes it is beneficial
to file when the estate is under
the exemption amount.
Please contact this office
for return preparation assistance
a Fiduciary Return Required?
Generally, income attributable to a decedent
up to the time of death is included in
final individual tax return. Upon
death, income that would have been attributable
to the decedent is now income to the decedent's
estate and reported on the estate's income
Form 1041 (fiduciary tax return) is the
income tax return used for the estate.
It is used to report income on the assets
in the estate, including sales of property.
The estate exists until final distribution
of its assets. The tax year can be a calendar
year or a fiscal year--the type of year
is chosen when the first 1041 is filed
for the estate. Once chosen, the tax year
can only be changed with IRS permission.
Filing requirement - A return
must be filed if the estate has gross
income of $600 or more. However, if one
or more beneficiaries are a nonresident
alien, Form 1041 must be filed even if
the gross income is less than $600.
K-1s - K-1s are filed with the
1041 for each beneficiary. A copy of the
K-1 must be furnished to each beneficiary.
Because of the complexity of fiduciary
returns, you should contact this office
for your preparation needs.
Return of the Decedent
Generally, the same filing requirements
apply to a deceased taxpayer as would
otherwise be used if the taxpayer were
still living, based on income level, age,
and filing status.
return may also be required.
Refunds - If a decedent's
return claims a refund, Form 1310, Statement
of Person Claiming Refund Due a Deceased
Taxpayer, should be filed. However, Form
1310 is not needed if:
The person claiming the refund
is the surviving spouse of the decedent,
filing a joint return with the decedent,
A court-appointed or certified
personal representative is filing
an original return for the decedent.
Income to Include -
The decedent's income on the final return
generally includes income derived up to
the date of death.
Exemptions and Deductions - The
general rules for exemptions and deductions
apply to the final return.
Medical Expenses: Medical
expenses paid before death are claimed
by the decedent as itemized deductions
in the usual manner. Medical expenses
not deductible on the final return
become liabilities of the estate--they
are claimed on the estate tax return.
However, expenses that were paid
out of estate funds within one year
after death can be treated as if
paid by the decedent and claimed
on the decedent's final return as
Net Operating Loss (NOL) Carryovers:
An NOL carryover of the decedent
can only be deducted on his/her
final return. If the final return
results in an NOL, it can be carried
back to the decedent's prior year
returns (just as with other NOLs).
Passive Losses: When a passive
interest is transferred due to death,
the accumulated suspended losses
from the activity are deductible
on the decedent's final return.
The deduction amount is limited
to the excess of the basis of the
property at date of death over the
decedent's adjusted basis in the
property just before death.
Return Signature, Etc
- The word "DECEASED," the decedent's
name and the date of death should be written
at the top of page one of Form 1040. If
there is a personal representative, that
person must sign the return. If the return
is joint, the surviving spouse must also
sign. If there isn't a representative
and the return is joint, the surviving
spouse signs the return and notes in the
signature area: "Filing as surviving spouse".
If the decedent had no representative
or wasn't married, the person in charge
of the decedent's property should sign
as "personal representative.
Due Date - Due date for the decedent's
return is the same as for any other taxpayer,
regardless of the date of death during
Spouse Remarries in Same Year
If a deceased taxpayer was married at
the time of death, the deceased taxpayer
will have two filing options:
File a joint return with the surviving
File as a married taxpayer filing
a separate return.
If the surviving spouse
remarries before the end of the tax year,
the deceased spouse is required to file
married separate and the surviving spouse
can either file jointly with the new spouse
or married separate.
Selecting the most advantageous filing
status can have a significant impact on
the overall tax liability. Please call
this office for assistance.
Decedent Receiving Social Security Benefits?
A family member or other person responsible
for the beneficiary's affairs should do
Promptly notify Social Security
of the beneficiary's death by calling
Social Security Administration toll-free
If monthly benefits were being
paid via direct deposit, notify
the bank or other financial institution
of the beneficiary's death. Request
that any funds received for the
month of death and later be returned
to Social Security as soon as possible.
If benefits were being paid by
check, do not cash any checks received
for the month in which the beneficiary
died or thereafter. Return the checks
to Social Security as soon as possible.
You can return the check to your
A one-time payment of $255
is payable to the surviving spouse if
he or she was living with the beneficiary
at the time of death, OR if living apart,
was receiving Social Security benefits
on the beneficiary's earnings record.
If there is no surviving spouse, the payment
is made to a child who was eligible for
benefits on the beneficiary's earnings
record in the month of death.
The Decedent Own Capital Assets?
If the decedent owned capital assets,
the fair market value (FMV) of those assets
at the time of death must be determined
for estate and probate purposes and for
determining the basis of the assets in
the hands of the beneficiary.
FMV is determined as of date of death
(or estate valuation date). This means
that if the heirs sell inherited property
soon after the decedent's death, the result
will usually be little or no gain. FMV
will be used to figure depreciation, as
well as for figuring gain or loss on sale.
Valuation of inherited property is generally
taken from the estate tax return (if any)
unless the taxpayer (heir) can prove a
different value. If there is no estate
tax return, probate papers may provide
an "inventory" showing values of items
in the estate.
Stocks, mutual funds and other
readily traded securities: The
closing value on the date death
is generally accepted as the FMV.
The stock listings for the date
death from a newspaper will provide
that information for most stocks.
For more complicated portfolios,
contact the brokerage firm and request
a listing of all securities held
by the decedent along with the closing
price on the date of death.
Real Property: Depending
upon state law, for estate tax and
probate purposes, real property
generally must be appraised by a
qualified appraiser. However, if
there is no requirement for probate
or estate tax filing, then the executor
or heirs will need to establish
the FMV through other means such
as a qualified appraiser or comparable
The valuation process can
be complicated, and it may be to your
benefit to consult with this office as
soon as possible for assistance.