Taxes, Even After Death

Death and taxes are equally certain, but even when you die, the IRS still demands a final accounting. Kiplinger discusses this duty as it is specifically applied to federal income taxes. When a taxpayer dies, the taxpayer’s estate needs to account for all taxable income by April 15 of the year following the taxpayer’s death. The executor of the estate or a survivor is in charge of filing the taxpayer’s final return.

Reporting income: An executor or survivor should report income earned between the beginning of the year and the date of death. Income does not include earnings on savings or investments that accrue after death – it only includes what the decedent had a right to receive at the time of death. This can get complicated because sometimes payers report income to the IRS on a 1099 form and that form will often show more income assigned to the decedent than it should. If that is the case, report the entire amount of the decedent’s return on Schedule B and then deduct what is being reported by the estate or by another beneficiary who actually received the income. Money that is inherited is not usually subject to the federal income tax unless you inherit money from IRAs or annuities. Even then, there are exceptions for Roth IRAs.

Reporting deductions: Whoever is filing the final tax return can deduct all deductible expenses before death, and the cost of a final illness can be deducted even if the bills weren’t paid until after death.

Basis of inherited property: In the vast majority of cases, the basis of inherited property is the value of the property on the date of death of the previous owner.

See Death and Taxes, Kiplinger, Mar. 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.