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Deceased Taxpayers

Deceased Taxpayers
Ines Zemelman, EA
12 March 2022

Although most taxpayers do not think about it, the fact is the IRS will expect a final tax return to be filed after death by the taxpayer’s survivors or executor. Taxpayers who die in any given year must have one final tax return submitted to the IRS on their behalf to account for any income or transfers received in that year. A copy of the official death certificate must be attached to the return for it to be processed. 

Whose responsibility is to file

Typically, the surviving spouse or person appointed by the courts to administer affairs relating to the deceased person's estate is responsible for filing and signing tax forms. In the same manner, the executor of an estate or a surviving spouse can claim refunds owed by the IRS to the deceased. Whether e-filed or filed on paper, be sure to write “deceased” after the taxpayer’s name. If paper-filed, also include the taxpayer’s date of death across the top of the return.

Filing the last return

Generally speaking, this final tax return is completed and filed the same way as when the taxpayer was alive, except the word “deceased” is included after their name on the return. The April 15th deadline remains the same as well.

Filing a joint tax return with a deceased spouse is possible for the year of spouse’s death — unless you remarry during that year. If you remarry in the year of your spouse's death, you can't file jointly with your deceased spouse. However, you can use married filing jointly with your new spouse.

Surviving spouses who have remarried must file with the new spouse, either jointly or separately. The deceased spouse’s filing status becomes Married Filing Separately.

If you are the surviving spouse who has a dependent child may be able to use/file as a Qualifying Widow(er) in the two tax years following the year of your spouse’s death. After two years you can use the head of household status which is much more beneficial than using single filing status.

Important: FBAR on behalf of the deceased taxpayer needs to be filed as well; regardless of whether the surviving spouse is filing under the Married Filing Jointly  or Married Filing Separately status.

If the survivors or executor find that previous years’ tax returns were not filed, they should also file those. Verification of filing status, and some income documents can be requested on Form 4506-T. This guide will provide more information on how to request tax information on behalf of the decedent.

How to do taxes for deceased parent - filing taxes for deceased family member/parent can be done using the same IRS Form 1040 as you would for living taxpayers, but note the date of death on the top. If there's no surviving spouse, then the trustee, executor or administrator must file Form 56 letting the IRS know that they're the person responsible for the final tax return. All income up to the date of death has to be reported, and all credits and deductions to which they are entitled can still be claimed.

Signing tax return for deceased spouse - If you're a surviving spouse filing a joint return and there's no appointed personal representative, you should sign the return and write in the signature area "Filing as surviving spouse."

What is needed to file taxes for deceased and how to file a tax return for a deceased person

Deceased person tax filing requirements -  relevant income until the taxpayer’s death is required to be reported. Preparing a tax return for a deceased person is in the same manner as when they were alive. All income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed.

Often, banks, brokerages, mutual funds, and similar companies will report the taxpayer’s income using a 1099 form. Even though it is best to change ownership of any accounts as soon as possible, it is not unusual for the 1099 to show a greater income than it should. In that case, report the 1099 amount using Schedule B with the deceased taxpayer’s return, then deduct any amount reported by other beneficiaries or by the estate.

Inherited money is usually not taxed federally, although interest accrued prior to death but paid after death is treated as income on the decedent’s return.

Retirement accounts

Retirement accounts pose a complication to the general rule that inheritances are not taxed. Money in employer-sponsored accounts, like 401(k)s, traditional IRAs, and annuities gets treated like income to the deceased taxpayer.

Roth accounts (both IRA and 401(k)) remain tax exempt if the account was open a minimum of five years. If the death occurs before the five year period, the heir can roll the account into a Roth IRA to complete the holding period.

As of 2007, non-spouses who inherit 401(k)s can roll them over and take the distributions (and the tax bill) over their entire lifetime, the same as spouses have always done. In the case of Roth IRAs, heirs are required to withdraw the entire account within 5 years of the date of death, or simply take minimum withdrawals. If the beneficiary is taking distributions from an inherited Roth IRA, which has existed for longer than 5-years, all distributions will be tax-free. If the five-year rule is violated,  the beneficiaries would pay a penalty.

Home sales

Married taxpayers are allowed a $500,000 home sale profit without owing taxes, while single taxpayers are allowed $250,000. The surviving spouse is allowed to claim the full $500,000 for two years after their spouse’s death.

Inherited property

If the death occurred in any year except 2010, property owned by the taxpayer at their death has its tax basis “stepped up”, or changed, to the value on the date of death. This has the effect of preventing any gains during their lifetime from being taxed. You can avoid difficulties in determining the value later by simply valuing the property soon after death.

Payments and Refunds

If the deceased taxpayer owes additional tax, payment should be made with the return as you would with a living taxpayer. For refunds, use Form 1310 (Statement of Person Claiming Refund Due a Deceased Taxpayer).

Additional detail can be found in various IRS publications, including Publication 559 (Survivors, Executors and Administrators), Publication 17 (Your Federal Income Tax), and even in the instructions for Form 1040.

Can you electronically file a return for a deceased taxpayer

IRS will allow tax returns for deceased taxpayers to be e-filed. Before you file a decedent return, make sure the Social Security Administration has been notified of the taxpayer's death. You can either go to their website or call 1-800-772-1213. Many (but not all) states allow decedent tax returns to be e-filed as well.

Ines Zemelman, EA
Founder of TFX