Personal Finance
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DEATH OF A TAXPAYERUpon 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. Thi...
Federal Estate Tax Retroactively ReinstatedThe Bush era tax cuts slowly phased out the federal estate tax and abolished it altogether for decedents dying in 2010, and replaced it with a rather complicated modified carryover basis regime. Just about everyone assumed Congress would reinstate the estate tax for 2010. As the year wore on, opinions began to change to where just about everyone predicted Congress would not reinstate the estate tax for 2010. Then out of the blue, mixed in with the GOP/Obama Admin...
Did 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...
Is a Fiduciary Return Required?Generally, income attributable to a decedent up to the time of death is included in the decedent's 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 tax return.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...
Final Return of the DecedentGenerally, 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. CAUTION: A fiduciary return reporting the income earned on the decedent’s assets after the date of death and until the assets are distributed to the beneficiaries may also be required. In many cases, a fiduciary return may need to be filed for more than one year.Refunds - If a decedent's return claims a refund, Form 1...
Returns That Need To Be FiledThe 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 federal return as usual on Form 1040, 1040A, etc., and a corresponding state return, if required.Form 1041 - This is the federal income tax return of the estate--used to report income received on the assets in the estate, including sales of property. An equivalent return for the decedent’s state of residence may also be ...
Was Decedent Receiving Social Security Benefits?If the answer to that question is "yes," a family member or other person responsible for the beneficiary's affairs should do the following:
Promptly notify Social Security of the beneficiary's death by calling Social Security Administration toll-free at 1-800-772-1213. Note: Some funeral homes will automatically inform the Social Security Administration as part of the services they provide. Check with them prior to contacting the Social Security Administration.
If monthly benefits were b...
Surviving Spouse Remarries in Same YearIf a deceased taxpayer was married at the time of death, the executor of the estate of the deceased taxpayer will have two filing options for the decedent:
File a joint return with the surviving spouse, or
File as a married taxpayer filing a separate return.
If the surviving spouse remarries before the end of the tax year, the return for the deceased spouse is required to be filed as married separate, and the surviving spouse can either file jointly with the new spouse or married...