- Publication 559 - Introductory Material
- Publication 559 - Main Content
- Personal Representative
- Fees Received by Personal Representatives
- Final Income Tax Return for DecedentForm 1040
- Return for preceding year.
- Name, Address, and Signature
- When and Where To File
- Filing Requirements
- Income To Include
- Cash Method
- Accrual Method
- Interest and Dividend Income (Forms 1099)
- Partnership Income
- S Corporation Income
- Self-Employment Income
- Community Income
- HSA, Archer MSA, or Medicare Advantage MSA
- Coverdell Education Savings Account (ESA)
- Accelerated Death Benefits
- Exemptions and Deductions
- Credits, Other Taxes, and Payments
- Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts
- Filing Reminders
- Other Tax Information
- Tax Benefits for Survivors
- Income in Respect of a Decedent
- How To Report
- Specific Types of Income in Respect of a Decedent
- Farm income from crops, crop shares, and livestock.
- Partnership income.
- U.S. savings bonds acquired from decedent.
- Specific dollar amount legacy satisfied by transfer of bonds.
- Cashing U.S. savings bonds.
- Interest accrued on U.S. Treasury bonds.
- Interest accrued on savings certificates.
- Inherited IRAs.
- Roth IRAs.
- Coverdell education savings account (ESA).
- HSA, Archer MSA, or a Medicare Advantage MSA.
- Deductions in Respect of a Decedent
- Estate Tax Deduction
- Gifts, Insurance, and Inheritances
- Veterans' insurance proceeds.
- Life insurance proceeds.
- Accelerated death benefits.
- Terminally ill individual.
- Chronically ill individual.
- Exclusion limited.
- Interest option on insurance.
- Insurance received in installments.
- Specified number of installments.
- Specified amount payable.
- Installments for life.
- Flexible premium contracts.
- Basis of Inherited Property
- Exception for appreciated property.
- Appreciated property.
- Special-use valuation.
- Increased basis for special-use valuation property.
- S corporation stock.
- Joint interest.
- Qualified joint interest.
- Valuation misstatements.
- Holding period.
- Property distributed in kind.
- Other Items of Income
- Income Tax Return of an Estate Form 1041
- Filing Requirements
- Income To Include
- Income in respect of a decedent.
- Gain (or loss) from sale of property.
- Redemption of stock to pay death taxes.
- Character of asset.
- Sale of decedent's residence.
- Holding period.
- Basis of property.
- Schedule D (Form 1041) and Form 8949.
- Installment obligations.
- Gain from sale of special-use valuation property.
- Qualified heirs.
- Gain from transfer of property to a political organization.
- Gain or loss on distributions in kind.
- Exemption and Deductions
- Exemption Deduction
- Charitable Contributions
- Administration Expenses
- Depreciation and Depletion
- Income Distribution Deduction
- Distributable net income.
- Tax-exempt interest.
- Exemption deduction.
- Capital gains.
- Capital losses.
- Separate shares rule.
- Income in respect of a decedent.
- Income required to be distributed currently.
- Any other amount paid, credited, or required to be distributed.
- Interest in real estate.
- Property distributed in kind.
- Tax-exempt income not deductible.
- Denial of double deduction.
- Charitable contribution.
- Funeral and Medical Expenses
- Credits, Tax, and Payments
- Name, Address, and Signature
- When and Where To File
- Distributions to Beneficiaries
- Income That Must Be Distributed Currently
- Other Amounts Distributed
- Discharge of a Legal Obligation
- Character of Distributions
- How and When To Report
- Termination of Estate
- Period of Administration
- Transfer of Unused Deductions to Beneficiaries
- Transfer of Credit for Estimated Tax Payments
- Estate and Gift Taxes
- Person receiving the gift or bequest.
- No income tax deduction.
- Filing requirements.
- Basic exclusion amount.
- Applicable credit amount.
- Restored exclusion and GST exemption amounts.
- Gift Tax
- Estate Tax
- Basis Reporting Requirement
- Generation-Skipping Transfer Tax
- Comprehensive Example
- How To Get Tax Help
- Preparing and filing your tax return.
- Getting tax forms and publications.
- Access your online account (Individual taxpayers only).
- Using direct deposit.
- Delayed refund for returns claiming certain credits.
- Getting a transcript or copy of a return.
- Using online tools to help prepare your return.
- Resolving tax-related identity theft issues.
- Checking on the status of a refund.
- Making a tax payment.
- What if I cant pay now?
- Checking the status of an amended return.
- Understanding an IRS notice or letter.
- Contacting your local IRS office.
- Watching IRS videos.
- Getting tax information in other languages.
- The Taxpayer Advocate Service Is Here To Help You
- Low Income Taxpayer Clinics
- Personal Representative
- Publication 559 - Additional Material
For the latest information about developments related to Pub. 559, such as legislation enacted after it was published, go to IRS.gov/Pub 559.
Reporting expenses subject to 2% floor and not subject to 2% floor. Regulations under section 67(e) clarify which costs, such as investment advisory and bundled fiduciary fees, incurred by estates and nongrantor trusts are and are not exempt from the 2% floor for miscellaneous itemized deductions. Regulations section 1.67-4 is available at IRS.gov/irb/2014-22_IRB/ ar05.html amended at IRS.gov/irb/ 2014-32_IRB/ar06.html. For more information, see the Instructions for Form 1041.
Form 8971. Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, along with its Schedule A, is used to comply with the filing requirements regarding consistent basis reporting between an estate and a person acquiring property from an estate.
Restored exclusion and GST exemption amounts. If a decedent made a taxable gift during the decedent's lifetime to the decedent's same-sex spouse and that transfer resulted in a reduction of the decedent's available applicable exclusion amount, there is a new procedure allowing the decedent to restore the exclusion that was utilized in the transfer. If a decedent made a taxable gift during the decedent's lifetime to a skip person whose generation assignment is changed as a result of Notice 2017-15, any GST exemption amount allocated to the gift will be deemed void. For more information, see the Instructions for Form 706 and Notice 2017-15, 2017-06 I.R.B. 783.
Extension for executors filing to elect portability. Executors who didn't have a filing requirement under section 6018(a), but failed to timely file Form 706 to make the portability election, may be eligible for an extension under Rev. Proc. 2017-34, 2017-26 I.R.B. 1282. Executors filing to elect portability, may now file Form 706 on or before the later of January 2, 2018 or the second anniversary of the decedent's death. For more information see Rev. Proc. 2017-34.
Throughout this publication, section references are to the Internal Revenue Code unless otherwise noted.
An executor of an estate (or other person) required to file an estate tax return after July 31, 2015, must provide a Form 8971 with attached Schedules A to the IRS, and a copy of the beneficiary's Schedule A to each beneficiary who receives or is to receive property from the estate. The Schedule A must show the final estate tax value of the property received or to be received by the beneficiary. An executor (or other person) who files an estate tax return only to make an election regarding the generation-skipping transfer tax or portability of the deceased spousal unused exclusion (DSUE) may not be required to provide Form 8971 and Schedule A.
If Part 2, column C of the Schedule A received by the beneficiary indicates that the property increases the estate tax liability, the beneficiary must use a basis consistent with the final estate tax value of the property to determine the beneficiary’s basis in that property. Calculate a basis consistent with the final estate tax value by starting with the reported value and then making any allowed adjustments.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
This publication is designed to help those in charge (personal representatives) of the property (estate) of an individual who has died (decedent). It shows them how to complete and file federal income tax returns and explains their responsibility to pay any taxes due on behalf of the decedent. A comprehensive example of the decedent's final tax return, Form 1040, U.S. Individual Income Tax Return, and estate's income tax return, Form 1041, U.S. Income Tax Return for Estates and Trusts, are included in this publication.
The publication also explains how much money or property a taxpayer can give away during their lifetime or leave to their heirs at their death before any tax will be owed. A discussion of Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, and Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is included.
Also included in this publication are the following items.
A checklist of the forms you may need and their due dates.
A worksheet to reconcile amounts reported in the decedent's name on information returns including Forms W-2, Wage and Tax Statement; 1099-INT, Interest Income; 1099-DIV, Dividends and Distributions; etc. The worksheet will help you correctly determine the income to report on the decedent's final return and on the return for either the estate or a beneficiary.
3 Armed Forces' Tax Guide
Form (and Instructions)
SS-4 Application for Employer Identification Number
56 Notice Concerning Fiduciary Relationship
1040 U.S. Individual Income Tax Return
1041 U.S. Income Tax Return for Estates and Trusts
706 United States Estate (and Generation-Skipping Transfer) Tax Return
709 United States Gift (and Generation-Skipping Transfer) Tax Return
1310 Statement of Person Claiming Refund Due a Deceased Taxpayer
See How To Get Tax Help near the end of this publication for information about getting publications and forms. Also near the end of this publication is Table A, a checklist of forms and their due dates for the executor, administrator, or personal representative.
A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor can't or won't serve.
In general, an executor and an administrator perform the same duties and have the same responsibilities.
For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term "executor" includes anyone in actual or constructive possession of any property of the decedent. It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country.
The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries.
The personal representative also must perform the following duties.
Apply for an employer identification number (EIN) for the estate.
File all tax returns, including income, estate, and gift tax returns, when due.
Pay the tax determined up to the date of discharge from duties.
Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. If any beneficiary is a nonresident alien, see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent.
All personal representatives must include fees paid to them from an estate in their gross income. If you aren't in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C, Profit or Loss From Business; or Schedule C-EZ, Net Profit From Business, of your Form 1040.
If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040.
The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. A surviving spouse, under certain circumstances, may have to file the returns for the decedent. See Joint Return later.
See When and Where To File, later, if the due date falls on a weekend or legal holiday. See Pub. 509, Tax Calendars, for a list of all legal holidays.
Write the word "DECEASED," the decedent's name, and the date of death across the top of the tax return. If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. If a joint return isn't being filed, write the decedent's name in the name field and the personal representative's name and address in the address field.
The final income tax return is due at the same time the decedent's return would have been due had death not occurred. A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day.
Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. A tax return for a decedent can be electronically filed. A personal representative also may obtain an income tax filing extension on behalf of a decedent.
The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Gross income is all income received by an individual from any source in the form of money, goods, property, and services that isn't tax-exempt. It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. In general, filing status depends on whether the decedent was considered single or married at the time of death. See the income tax return instructions or Pub. 501, Exemptions, Standard Deduction, and Filing Information.
A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return isn't otherwise required to be filed. Also, the decedent may be entitled to other credits that result in a refund. These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments.
If the decedent was a nonresident alien who would have had to file Form 1040NR, U.S. Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. See the Instructions for Form 1040NR for the filing requirements, due date, and where to file.
Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return.
A final joint return with the decedent can't be filed if the surviving spouse remarried before the end of the year of the decedent's death. The filing status of the decedent in this instance is married filing a separate return.
For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information.
The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. The method of accounting regularly used by the decedent before death also determines the income includible on the final return. This section explains how some types of income are reported on the final return.
For more information about accounting methods, see Pub. 538, Accounting Periods and Methods.
If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return.
Generally, under an accrual method of accounting, income is reported when earned.
If the decedent used an accrual method, only the income items normally accrued before death are included on the final return.
Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. You can request corrected Forms 1099 if these forms don't properly reflect the right recipient or amounts.
For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. If that isn't possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown under How to report next.
See U.S. savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return.
The death of a partner closes the partnership's tax year for that partner. Generally, it doesn't close the partnership's tax year for the remaining partners. The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year.
On the decedent's final return, include the decedent's distributive share of partnership items for the following periods.
The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death).
The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death.
Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. The partnership uses a tax year ending June 30. Mary died August 31, 2017, and her estate established its tax year through August 31.
The distributive share of partnership items based on the decedent's partnership interest is reported as follows.
Final Return for the Decedent—January 1 through August 31, 2017, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2017, and (b) the partnership tax year beginning July 1, 2017, and ending August 31, 2017 (the date of death).
Income Tax Return of the Estate—September 1, 2017, through August 31, 2018, includes XYZ partnership items for the period September 1, 2017, through June 30, 2018.
If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods.
The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death).
The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death.
Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year.
If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. For more information, see Pub. 555, Community Property.
The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder depends on who acquires the interest in the account. If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. The estate tax deduction, discussed later, doesn't apply to this amount.
If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Pub. 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. The estate tax deduction, discussed later, doesn't apply to this amount. If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later.
The age 30 limitation doesn't apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education.
For more information on Coverdell ESAs, see Pub. 970, Tax Benefits for Education.
Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider.
Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits aren't included in the decedent's income. For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later.
Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. See Medical Expenses, later.
You can claim the decedent's personal exemption on the final income tax return. If the decedent was another person's dependent (for example, a parent's), you can't claim the personal exemption on the decedent's final return.
If you don't itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. For information on the appropriate standard deduction, see the Form 1040 instructions or Pub. 501.
Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. This includes expenses for the decedent, as well as for the decedent's spouse and dependents.
Qualified medical expenses aren't deductible if paid with a tax-free distribution from an HSA or an Archer MSA.
No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. These expenses may be deductible for estate tax purposes on Form 706.
A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. A net operating loss on the decedent's final income tax return can be carried back to prior years. (See Pub. 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.) You can't deduct any unused net operating loss or capital loss on the estate's income tax return.
Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent.
On the final income tax return, you can claim any tax credits that applied to the decedent before death. Some of these credits are discussed next.
Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040.
Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut.
If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. For this purpose, a qualified hazardous duty area is treated as a combat zone.
If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded.
Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death won't be assessed. If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Also, if any tax was collected after the date of death, that amount will be credited or refunded.
The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. This is true even if death actually occurred earlier.
For other tax information for members of the Armed Forces, see Pub. 3, Armed Forces' Tax Guide.
The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred:
While a U.S. employee, and
In a military or terrorist action.
The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred.
The income tax liability of a civilian employee of the United States who died in 2017 because of wounds incurred while a U.S. employee in a terrorist attack that occurred in 2011 will be forgiven for 2017 and for all prior tax years in the period 2010 through 2016. Refunds are allowed for the tax years for which the period for filing a claim for refund hasn't ended, as discussed later.
The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years.
The April 19, 1995, terrorist attack on the Alfred P. Murrah Federal Building (Oklahoma City).
The September 11, 2001, terrorist attacks.
The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002.
The Act also exempts from federal income tax the following types of income.
Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack.
Certain disability payments (including Social Security Disability Insurance (SSDI) payments) received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack.
Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack.
Payments from the September 11th Victim Compensation Fund 2001.
The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. See Pub. 3920, Tax Relief for Victims of Terrorist Attacks, for more information.
Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. For information on death benefit payments and the reduction of federal estate taxes, see Pub. 3920. However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001).
For more information on the Act, see Pub. 3920.
If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim hasn't ended will be credited or refunded. If any tax is still due, it will be canceled. The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later.
If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by:
The amount of time served in the combat zone (including any period in which the individual was in missing status), plus
The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus
The next 180 days.
Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years.
This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation.
To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures.
Write "DECEASED," the decedent's name, and the date of death across the top of the tax return.
If a personal representative has been appointed, the personal representative must sign the return. If it is a joint return, the surviving spouse must also sign it.
If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write "Filing as surviving spouse" in the area where you sign the return.
If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as "personal representative."
To claim a refund for the decedent, do the following.
If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund.
If you are the personal representative and the return isn't a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. (A power of attorney or a copy of the decedent's will isn't acceptable evidence of your appointment as the personal representative.) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write "Certificate Previously Filed" at the bottom of Form 1310).
If you aren't filing a joint return as the surviving spouse and a personal representative hasn't been appointed, file the return and attach Form 1310.
Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate.
Survivors can qualify for certain benefits when filing their own income tax returns.
All income the decedent would have received had death not occurred that wasn't properly includible on the final return, discussed earlier, is income in respect of a decedent.
If the decedent is a specified terrorist victim (see Specified Terrorist Victim , earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. This exclusion doesn't apply to certain income. For more information, see Pub. 3920.
Income in respect of a decedent must be included in the income of one of the following.
The decedent's estate, if the estate receives it.
The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.
Any person to whom the estate properly distributes the right to receive it.
If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. See Estate Tax Deduction, later.
Frank Johnson owned and operated an apple orchard. He used the cash method of accounting. He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but didn't receive payment before his death. The proceeds from the sale are income in respect of a decedent. When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. When Frank's widow collects the $2,000, she must include that amount in her return. It isn't reported on the final return of the decedent or on the return of the estate.
Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. The amount accrued from the sale of the apples would be included on his final return. Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid.
On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. His adjusted basis in the tractor was $2,000. George died on February 15, before receiving payment. The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived.
Cathy O'Neil was entitled to a large salary payment at the date of her death. The amount was to be paid in five annual installments. The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. The payments are income in respect of a decedent. None of the payments were includible on Cathy's final return. The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them.
You inherited the right to receive renewal commissions on life insurance sold by your father before his death. You inherited the right from your mother, who acquired it by bequest from your father. Your mother died before she received all the commissions she had the right to receive, so you received the rest. The commissions are income in respect of a decedent. None of these commissions were includible in your father's final return. The commissions received by your mother were included in her income. The commissions you received aren't includible in your mother's income, even on her final return. You must include them in your income.
Items such as business expenses, income-producing expenses, interest, and taxes, for which the decedent was liable but that aren't properly allowable as deductions on the decedent's final income tax return will be allowed as a deduction to one of the following when paid:
The estate, or
The person who acquired an interest in the decedent's property (subject to such obligations) because of the decedent's death, if the estate wasn't liable for the obligation.
Income that the decedent had a right to receive is included in the decedent's gross estate and is subject to estate tax. This income in respect of a decedent is also taxed when received by the recipient (estate or beneficiary). However, an income tax deduction is allowed to the recipient for the estate tax paid on the income.
The deduction for estate tax paid can only be claimed for the same tax year in which the income in respect of a decedent must be included in the recipient's income. (This also is true for income in respect of a prior decedent.)
Individuals can claim this deduction only as an itemized deduction on line 28 of Schedule A (Form 1040). This deduction isn't subject to the 2% limit on miscellaneous itemized deductions. Estates can claim the deduction on line 19 of Form 1041. For the alternative minimum tax computation, the deduction isn't included as an itemized deduction that is an adjustment to taxable income.
If income in respect of a decedent is capital gain income, you must reduce the gain, but not below zero, by any deduction for estate tax paid on such gain. This applies in figuring the following.
The maximum tax on net capital gain (including qualified dividends).
The exclusion for gain on small business stock under section 1202.
The limitation on capital losses.
Property received as a gift, bequest, or inheritance isn't included in your income. However, if property you receive in this manner later produces income, such as interest, dividends, or rents, that income is taxable to you. The income from property donated to a trust that is paid, credited, or distributed to you is taxable income to you. If the gift, bequest, or inheritance is the income from property, that income is taxable to you.
If you receive property from a decedent's estate in satisfaction of your right to the income of the estate, it is treated as a bequest or inheritance of income from property. See Distributions to Beneficiaries, later.
The proceeds from a decedent's life insurance policy paid by reason of his or her death generally are excluded from income. The exclusion applies to any beneficiary, whether a family member or other individual, a corporation, or a partnership.
The basis of property inherited from a decedent is generally one of the following.
The FMV of the property on the date of the individual's death.
The FMV on the alternate valuation date (discussed in the Instructions for Form 706) if elected by the personal representative.
The value under the special-use valuation method for real property used in farming or other closely held business (see Special-use valuation, later), if elected by the personal representative.
The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement (discussed in the Instructions for Form 706).
See Pub. 551, Basis of Assets, for more information on basis. If the decedent and his or her spouse lived in a community property state, see the discussion in that publication about figuring the basis of community property after a spouse's death.
Some other items of income that a survivor or beneficiary may receive are discussed below. Lump-sum payments received by the surviving spouse or beneficiary of a deceased employee may represent the following.
Accrued salary payments.
Distributions from employee profit-sharing, pension, annuity, and stock bonus plans.
Other items that should be treated separately for tax purposes.
The treatment of these lump-sum payments depends on what the payments represent.
The provisions for public safety officers apply to a chaplain killed in the line of duty after September 10, 2001, if the chaplain was responding to a fire, rescue, or police emergency as a member or employee of a fire or police department.
An estate is a taxable entity separate from the decedent and comes into being with the death of the individual. It exists until the final distribution of its assets to the heirs and other beneficiaries. The income earned by the assets during this period must be reported by the estate under the conditions described in this publication. The tax generally is figured in the same manner and on the same basis as for individuals, with certain differences in the computation of deductions and credits, as explained later.
The estate's income, like an individual's income, must be reported annually on either a calendar or fiscal year basis. The personal representative chooses the estate's accounting period upon filing the first Form 1041. The estate's first tax year can be any period that ends on the last day of a month and doesn't exceed 12 months.
Generally, once chosen the tax year can't be changed without IRS approval. Also, on the first income tax return, the personal representative must choose the accounting method (cash, accrual, or other) to report the estate's income. Once a method is used, it ordinarily can't be changed without IRS approval. For a more complete discussion of accounting periods and methods, see Pub. 538.
Every domestic estate with gross income of $600 or more during a tax year must file a Form 1041. If one or more of the beneficiaries of the domestic estate are nonresident aliens, the personal representative must file Form 1041, even if the gross income of the estate is less than $600.
A fiduciary for a nonresident alien estate with U.S. source income, including any income that is effectively connected with the conduct of a trade or business in the United States, must file Form 1040NR, U.S. Nonresident Alien Income Tax Return, as the income tax return of the estate.
A nonresident alien who was a resident of Puerto Rico, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands for the entire tax year will, for this purpose, be treated as a resident alien of the United States.
The personal representative must file a separate Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. or an acceptable substitute (described below), for each beneficiary. File these schedules with Form 1041.
The personal representative must ask each beneficiary to provide a taxpayer identification number (TIN), which must be reported on the Schedule K-1 (Form 1041). A $50 penalty is charged for each failure to provide the identifying number of each beneficiary unless reasonable cause is established. A nonresident alien beneficiary with a withholding certificate generally must provide a TIN (see Pub. 515). A TIN isn't required for an executor or administrator of the estate unless that person is also a beneficiary.
The personal representative must also give a Schedule K-1 (Form 1041), or a substitute, to each beneficiary by the date on which the Form 1041 is filed. Failure to provide this payee statement can result in a penalty of $260 for each failure. This penalty also applies if information is omitted or incorrect information is included on the payee statement. If it is shown that such failure is due to intentional disregard of the filing requirement, the penalty amount increases.
No prior approval is needed for a substitute Schedule K-1 (Form 1041) that is an exact copy of the official schedule or that follows the specifications in Pub. 1167, General Rules and Specifications for Substitute Forms and Schedules. Prior approval is required for any other substitute Schedule K-1 (Form 1041).
If an amended Form 1041 must be filed, use a copy of the form for the appropriate year and check the "Amended return" box. Complete the entire return, correct the appropriate lines with the new information, and refigure the tax liability. On an attached sheet, explain the reason for the changes and identify the lines and amounts changed.
If the amended return results from a net operating loss carryback, check the "Net operating loss carryback" box. For more information, see the Instructions for Form 1041.
If the amended return results in a change to income, or a change in distribution of any income or other information provided to a beneficiary, an amended Schedule K-1 (Form 1041) must be filed with Form 1041 and a copy given to each beneficiary. Check the "Amended K-1" box at the top of Schedule K-1 (Form 1041).
Even though the personal representative may not have to file an income tax return for the estate, Form 1099-DIV, Form 1099-INT, or Form 1099-MISC may need to be filed if the estate received income as a nominee or middleman for another person. For more information on filing information returns, see the General Instructions for Certain Information Returns.
The personal representative will not have to file information returns for the estate if the estate is the owner of record, Form 1041 is filed for the estate (reporting the name, address, and identifying number of each actual owner), and a completed Schedule K-1 (Form 1041) is provided to each actual owner.
The personal representative does not have to include a copy of the decedent's will with Form 1041. If the will is later requested, attach a statement to it indicating the provisions that determine how much of the estate's income is taxable to the estate or to the beneficiaries. A statement signed by the personal representative under penalties of perjury that the will is a true and complete copy should also be attached.
The estate's taxable income generally is figured the same way as an individual's income, except as explained in the following discussions.
Gross income of an estate consists of all items of income received or accrued during the tax year. It includes dividends, interest, rents, royalties, gain from the sale of property, and income from business, partnerships, trusts, and any other sources. For a discussion of income from dividends, interest, and other investment income, as well as gains and losses from the sale of investment property, see Pub. 550, Investment Income and Expenses. For a discussion of gains and losses from the sale of other property, including business property, see Pub. 544, Sales and Other Dispositions of Assets.
If the personal representative's duties include the operation of the decedent's business, see Pub. 334. That publication provides general information about the tax laws that apply to a sole proprietorship.
The gain from a sale of depreciable property between an estate and a beneficiary of that estate will be treated as ordinary income, unless the sale or exchange was made to satisfy a pecuniary (cash) bequest.
In figuring taxable income, an estate is generally allowed the same deductions as an individual. Special rules, however, apply to some deductions for an estate. This section includes discussions of those deductions affected by the special rules.
An estate is allowed an exemption deduction of $600 in figuring its taxable income. No exemption for dependents is allowed to an estate. Even though the first return of an estate may be for a period of less than 12 months, the exemption is $600. If, however, the estate was given permission to change its accounting period, the exemption is $50 for each month of the short year.
An estate qualifies for a deduction for gross income paid or permanently set aside for qualified charitable organizations. The adjusted gross income limits for individuals don't apply. However, to be deductible by an estate, the contribution must be specifically provided for in the decedent's will. If there is no will, or if the will makes no provision for the payment to a charitable organization, then a deduction won't be allowed even though all beneficiaries may agree to the gift.
You can't deduct any contribution from income not included in the estate's gross income. If the will specifically provides that the contributions are to be paid out of the estate's gross income, the contributions are fully deductible. However, if the will contains no specific provisions, the contributions are considered to have been paid and are deductible in the same proportion as the gross income bears to the total of all classes (taxable and nontaxable) of income.
You can't deduct a qualified conservation easement granted after the date of death and before the due date of the estate tax return. A contribution deduction is allowed to the estate for estate tax purposes.
For more information about contributions, see Pub. 526, Charitable Contributions, and Pub. 561, Determining the Value of Donated Property.
Generally, an estate can claim a deduction for a loss it sustains on the sale of property. This includes a loss from the sale of property (other than stock) to a personal representative of the estate, unless that person is a beneficiary of the estate.
For a discussion of an estate's recognized loss on a distribution of property in kind to a beneficiary, see Income To Include, earlier.
An estate and a beneficiary of that estate are generally treated as related persons for purposes of the disallowance of a loss on the sale of an asset between related persons. The disallowance doesn't apply to a sale or exchange made to satisfy a pecuniary bequest.
Expenses of administering an estate can be deducted either from the gross estate in figuring the federal estate tax on Form 706 or from the estate's gross income in figuring the estate's income tax on Form 1041. However, these expenses can't be claimed for both estate tax and income tax purposes. In most cases, this rule also applies to expenses incurred in the sale of property by an estate (not as a dealer).
To prevent a double deduction, amounts otherwise allowable in figuring the decedent's taxable estate for federal estate tax on Form 706 won't be allowed as a deduction in figuring the income tax of the estate or of any other person unless the personal representative files a statement, in duplicate, that the items of expense, as listed in the statement, haven't been claimed as deductions for federal estate tax purposes and that all rights to claim such deductions are waived. One deduction or part of a deduction can be claimed for income tax purposes if the appropriate statement is filed, while another deduction or part is claimed for estate tax purposes. Claiming a deduction in figuring the estate income tax isn't prevented when the same deduction is claimed on the estate tax return so long as the estate tax deduction isn't finally allowed and the preceding statement is filed. The statement can be filed with the income tax return or at any time before the expiration of the statute of limitations that applies to the tax year for which the deduction is sought. This waiver procedure also applies to casualty losses incurred during administration of the estate.
The allowable deductions for depreciation and depletion that accrue after the decedent's death must be apportioned between the estate and the beneficiaries, depending on the income of the estate allocable to each.
An estate can't elect to treat the cost of certain depreciable business assets as an expense under section 179.
In 2017, the decedent's estate realized $3,000 of business income during the administration of the estate. The personal representative distributed $1,000 of the income to the decedent's son, Ned, and $2,000 to another son, Bill. The allowable depreciation on the business property is $300. Ned can take a deduction of $100 [($1,000 ÷ $3,000) × $300], and Bill can take a deduction of $200 [($2,000 ÷ $3,000) × $300].
An estate is allowed a deduction for the tax year for any income that must be distributed currently and for other amounts that are properly paid, credited, or required to be distributed to beneficiaries. This deduction is limited to the distributable net income of the estate.
For special rules about distributions that apply in figuring the estate's income distribution deduction, see Bequest under Distributions to Beneficiaries, later.
If the personal representative has discretion as to when the income is distributed, the deduction is allowed only in the year of distribution.
The personal representative can elect to treat distributions paid or credited within 65 days after the close of the estate's tax year as having been paid or credited on the last day of that tax year. The election is made by completing line 6 in the "Other Information" section of Form 1041. If a tax return isn't required, the election is made on a statement filed with the IRS office where the return would have been filed. The election is irrevocable for the tax year and is only effective for the year of the election.
This section includes brief discussions of some of the tax credits, types of taxes that may be owed, and estimated tax payments reported on the estate's Form 1041.
Estates generally are allowed some of the same tax credits that are allowed to individuals. The credits generally are allocated between the estate and the beneficiaries. However, estates aren't allowed the credit for the elderly or the disabled, the child tax credit, or the earned income credit discussed earlier under Final Income Tax Return for Decedent—Form 1040.
You can't use the Tax Table for individuals to figure the estate tax. You must use the tax rate schedule in the Instructions for Form 1041 to figure the estate tax.
In the top space of the name and address area of Form 1041, enter the exact name of the estate used to apply for the estate's employer identification number. In the remaining spaces, enter the name and address of the personal representative of the estate.
When Form 1041 (or Form 1040NR if it applies) is filed depends on whether the personal representative chooses a calendar year or a fiscal year as the estate's accounting period. Where Form 1041 is filed depends on where the personal representative lives or has their principal business office.
If you are the beneficiary of an estate that is required to distribute all its income currently, you must report your share of the distributable net income, whether or not you have actually received the distribution.
If you are a beneficiary of an estate that isn't required to distribute all its income currently, you must report all income that is required to be distributed to you currently (whether or not actually distributed), plus all other amounts paid, credited, or required to be distributed to you, up to your share of distributable net income. As explained earlier in Income Distribution Deduction, for an amount to be income required to be distributed currently, there must be a specific requirement for current distribution either under local law or the terms of the decedent's will. If there is no such requirement, the income is reportable only when distributed.
If the estate has more than one beneficiary, the separate shares rule discussed earlier under Income Distribution Deduction may have to be used to determine the distributable net income allocable to each beneficiary. The beneficiaries in the examples shown next don't meet the requirements of the separate shares rule.
Beneficiaries entitled to receive currently distributable income generally must include in gross income the entire amount due them. However, if the income required to be distributed currently is more than the estate's distributable net income figured without deducting charitable contributions, each beneficiary must include in gross income a ratable part of the distributable net income.
Under the terms of the will of Gerald Peters, $5,000 a year is to be paid to his widow and $2,500 a year is to be paid to his daughter out of the estate's income during the period of administration. There are no charitable contributions. For the year, the estate's distributable net income is only $6,000. The distributable net income is less than the currently distributable income, so the widow must include in her gross income only $4,000 [($5,000 ÷ $7,500) × $6,000], and the daughter must include in her gross income only $2,000 [($2,500 ÷ $7,500) × $6,000].
Any other amount paid, credited, or required to be distributed to the beneficiary for the tax year also must be included in the beneficiary's gross income. Such an amount is in addition to those amounts that are required to be distributed currently, as discussed earlier. It doesn't include gifts or bequests of specific sums of money or specific property if such sums are paid in three or fewer installments. However, amounts that can be paid only out of income aren't excluded under this rule. If the sum of the income that must be distributed currently and other amounts paid, credited, or required to be distributed exceeds distributable net income, these other amounts are included in the beneficiary's gross income only to the extent distributable net income exceeds the income that must be distributed currently. If there is more than one beneficiary, each will include in gross income only a pro rata share of such amounts.
The personal representative can elect to treat distributions paid or credited by the estate within 65 days after the close of the estate's tax year as having been paid or credited on the last day of that tax year.
The following are examples of other amounts distributed.
Distributions made at the discretion of the personal representative.
Distributions required by the terms of the will when a specific event occurs.
Annuities that must be paid in any event, but only out of corpus (principal).
Distributions of property in kind as defined earlier in Income Distribution Deduction under Income Tax Return of an Estate—Form 1041.
Distributions required for the support of the decedent's surviving spouse or other dependent for a limited period, but only out of corpus (principal).
If an estate distributes property in kind, the amount of the distribution ordinarily is the lesser of the estate's basis in the property or the property's fair market value when distributed. However, the amount of the distribution is the property's fair market value if the estate recognizes gain on the distribution. See Gain or loss on distributions in kind in the discussion Income To Include, earlier.
The terms of Michael Scott's will require the distribution of $2,500 of income annually to his wife, Susan. If any income remains, it may be accumulated or distributed to his two children, Joe and Alice, in amounts at the discretion of the personal representative. The personal representative also may invade the corpus (principal) for the benefit of Michael's wife and children.
Last year, the estate had income of $6,000 after deduction of all expenses. Its distributable net income is also $6,000. The personal representative distributed the required $2,500 of income to Susan. In addition, the personal representative distributed $1,500 each to Joe and Alice and an additional $2,000 to Susan.
Susan includes in her gross income the $2,500 of currently distributable income. The other amounts distributed totaled $5,000 ($1,500 + $1,500 + $2,000) and are includible in the income of Susan, Joe, and Alice to the extent of $3,500 (distributable net income of $6,000 minus currently distributable income to Susan of $2,500). Susan will include an additional $1,400 [($2,000 ÷ $5,000) × $3,500] in her gross income. Joe and Alice each will include $1,050 [($1,500 ÷ $5,000) × $3,500] in their gross incomes.
If an estate, under the terms of a will, discharges a legal obligation of a beneficiary, the discharge is included in that beneficiary's income as either currently distributable income or other amount paid. This doesn't apply to the discharge of a beneficiary's obligation to pay alimony or separate maintenance.
The beneficiary's legal obligations include a legal obligation of support, for example, of a minor child. Local law determines a legal obligation of support.
An amount distributed to a beneficiary for inclusion in gross income retains the same character for the beneficiary that it had for the estate.
How income from the estate is reported depends on the character of the income in the hands of the estate. When the income is reported depends on whether it represents amounts credited or required to be distributed to beneficiaries or other amounts.
A bequest is the act of giving or leaving property to another through the last will and testament. Generally, any distribution of income (or property in kind) to a beneficiary is an allowable deduction to the estate and is includible in the beneficiary's gross income to the extent of the estate's distributable net income. However, a distribution won't be an allowable deduction to the estate and won't be includible in the beneficiary's gross income if the distribution meets all the following requirements.
It is required by the terms of the will.
It is a gift or bequest of a specific sum of money or property.
It is paid out in three or fewer installments under the terms of the will.
The termination of an estate generally is marked by the end of the period of administration and by the distribution of the assets to the beneficiaries under the terms of the will or under the laws of succession of the state if there is no will. These beneficiaries may or may not be the same persons as the beneficiaries of the estate's income.
The period of administration is the time actually required by the personal representative to assemble all the decedent's assets, pay all the expenses and obligations, and distribute the assets to the beneficiaries. This may be longer or shorter than the time provided by local law for the administration of estates.
If the estate has unused loss carryovers or excess deductions for its last tax year, they are allowed to those beneficiaries who succeed to the estate's property. See Successor beneficiary, later.
When an estate terminates, the personal representative can elect to transfer to the beneficiaries the credit for all or part of the estate's estimated tax payments for the last tax year. To make this election, the personal representative must complete Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries, and file it either separately or with the estate's final Form 1041. The Form 1041-T must be filed by the 65th day after the close of the estate's tax year.
Filing Form 1041-T with Form 1041 doesn't change the due date for filing Form 1041-T. The IRS will reject a late filed election. If Form 1041-T is rejected and Form 1041 was filed based on a successful election, then the personal representative must file an amended Form 1041, including amended Schedule K-1(s).
The estimated tax allocated to each beneficiary is treated as paid or credited to the beneficiary on the last day of the estate's final tax year and must be reported in box 13, Schedule K-1 (Form 1041) using code A. If the estate terminated in 2017, this amount is treated as a payment of 2017 estimated tax made by the beneficiary on January 16, 2018.
This publication doesn't contain all the rules and exceptions for federal estate, gift, or GST taxes, nor does it contain all the rules that apply to nonresident noncitizens. If you need more information, see Form 709, Form 706, Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States, and the related instructions. This publication also doesn't contain any information about state or local taxes. That information should be available from your state and local taxing authority.
The discussion below is to give you a general understanding of when estate, gift, and generation-skipping transfer (GST) taxes apply and when they don't. It explains how much money or property can be given away during life or left to heirs at death before any tax will be owed. If the decedent gave someone money or property during his or her life, the personal representative may have to pay the federal gift tax on behalf of the decedent if it wasn't previously paid. The money and property owned by the decedent at death is the estate and may be subject to federal estate tax. This is in addition to any federal income tax that is owed on the gross income of the estate.
Most gifts aren't subject to the gift tax and most estates aren't subject to the estate tax. For example, there is usually no tax if a gift is given to a spouse or charity or if the estate goes to the decedent’s spouse or charity at death. If gifts are made to someone else, the gift tax usually doesn't apply until the value exceeds the annual exclusion for the year. See Annual exclusion under Gift Tax, later. Even if the gift or estate tax applies, it may be eliminated by the Applicable Credit Amount, discussed later.
Applicable credit amount.
A credit is an amount that reduces or eliminates tax. The applicable credit applies to both the gift tax and the estate tax and it equals the tax on the applicable exclusion amount. The applicable credit must be subtracted from any gift or estate tax owed. Any applicable credit used against gift tax in 1 year reduces the amount of credit that can be used against gift or estate taxes in a later year.
In 2017, the credit on the basic exclusion amount is $2,141,800 (exempting $5,490,000 from tax). The total amount of applicable credit available to a person will equal the tax on the basic exclusion amount plus the tax on any DSUE amount.
For examples of how the credit works, see Applying the applicable credit to gift tax and Applying the applicable credit to estate tax, later.
Restored exclusion and GST exemption amounts.
If a decedent made a taxable gift during the decedent's lifetime to the decedent's same-sex spouse and that transfer resulted in a reduction of the decedent's available applicable exclusion amount, there is a new procedure allowing the decedent to restore the exclusion that was utilized in the transfer. If a decedent made a taxable gift during the decedent's lifetime to a skip person whose generation assignment is changed as a result of Notice 2017-15, any GST exemption amount allocated to the gift will be deemed void. For more information, see the Instructions for Form 706 and Notice 2017-15, 2017-06 I.R.B. 783.
The gift tax applies to lifetime transfers of property from one person (the donor) to another person (the donee). A gift is made if tangible or intangible property (including money), the use of property, or the right to receive income from property is given without expecting to receive something of at least equal value in return. If something is sold for less than its full value or if a loan is made without interest or with reduced (less than market rate) interest, a gift may have been made.
The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule.
Generally, the following gifts aren't taxable gifts.
Gifts, excluding gifts of future interests, that aren't more than the annual exclusion for the calendar year.
Tuition or medical expenses paid directly to an educational or medical institution for someone else.
Gifts to your spouse.
Gifts to a political organization for its use.
Gifts to certain exempt organizations described in 501(c)(4), 501(c)(5), and 501(c)(6).
Gifts to charities.
Estate tax may apply to the decedent's taxable estate at death. The taxable estate is the gross estate less allowable deductions.
The applicable exclusion amount is the total amount exempted from gift and/or estate tax. For estates of decedents dying after December 31, 2010, the applicable exclusion amount equals the basic exclusion amount plus any DSUE amount. The DSUE amount is the remaining applicable exclusion amount from the estate of a predeceased spouse who died after December 31, 2010. The DSUE amount is only available where an election was made on the Form 706 filed by the deceased spouse’s estate.
Section 2004 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, requires executors to report the estate tax value of property passing from a decedent to the IRS and to the recipient of the property (beneficiary). The purpose of the requirement is to ensure that the appropriate value (or basis) is used to calculate the tax due from the sale or disposal of property received from an estate.
An executor of an estate (or other person) required to file an estate tax return after July 31, 2015, must provide a Form 8971 with attached Schedules A to the IRS, and a copy of the beneficiary's Schedule A to each beneficiary who receives or is to receive property from the estate. The Schedule A must show the final estate tax value of the property received or to be received by the beneficiary. An executor (or other person) who files an estate tax return only to make an election regarding the generation-skipping transfer tax or portability of the deceased spousal unused exclusion (DSUE) may not be required to provide Form 8971 and Schedule A. The executor is required to file Form 8971 and all Schedules A with the IRS and provide the beneficiary with their Schedule A within 30 days of the earlier of the due date (including extensions) or filing of Form 706.
The generation-skipping tax (GST) may apply to gifts during the decedent's life or transfers occurring at the decedent's death, called bequests, made to skip persons. A skip person is a person who belongs to a generation that is two or more generations below the generation of the donor. For instance, the decedent's grandchild will generally be a skip person to the decedent and his or her spouse. The GST tax is figured on the amount of the gift or bequest transferred to a skip person, after subtracting any GST exemption allocated to the gift or bequest at the maximum gift and estate tax rates. Each individual has a GST exemption equal to the basic exclusion amount, as indexed for inflation, for the year the gift or bequest was made. GSTs have three forms: direct skip, taxable distribution, and taxable termination.
A direct skip is a transfer made during your life or occurring at your death that is:
Subject to the gift or estate tax,
Of an interest in property, and
Made to a skip person.
A taxable distribution is any distribution from a trust to a skip person which isn't a direct skip or a taxable termination.
A taxable termination is the end of a trust’s interest in property where the property interest will be transferred to a skip person.
The following is an example of a typical situation. All figures on the filled-in forms have been rounded to the nearest whole dollar.
On April 9, 2017, your father, John R. Smith, died at the age of 72. He had not resided in a community property state. His will named you to serve as his executor (personal representative). Except for specific bequests to your mother, Mary, of your parents' home and your father's automobile and a bequest of $5,000 to his church, your father's will named your mother and his brother as beneficiaries.
After the court has approved your appointment as the executor, you should obtain an employer identification number for the estate. (See Duties under Personal Representatives, earlier.) Next, you use Form 56 to notify the Internal Revenue Service that you have been appointed executor of your father's estate.
From the papers in your father's files, you determine that the $11,000 paid to him by his employer (as shown on the Form W-2), rental income, and interest are the only items of income he received between January 1 and the date of his death. You will have to file an income tax return for him for the period during which he lived. (You determine that he timely filed his 2016 income tax return before he died.) The final return isn't due until April 17, 2018, the same date it would have been due had your father lived during all of 2017.
The check representing unpaid salary and earned but unused vacation time wasn't paid to your father before he died, so the $12,000 isn't reported as income on his final return. It is reported on the income tax return for the estate (Form 1041) for 2017. The only taxable income to be reported for your father will be the $11,000 salary (as shown on the Form W-2), the $1,900 interest, and his portion of the rental income that he received in 2017.
Your father was a cash basis taxpayer and didn't report the interest accrued on the series EE U.S. savings bonds on prior tax returns that he filed jointly with your mother. As the personal representative of your father's estate, you choose to report the interest earned on these bonds before your father's death ($840) on the final income tax return.
The rental property was leased the entire year of 2017 for $1,000 per month. Under local law, your parents (as joint tenants) each had a half interest in the income from the property. Your father's will, however, stipulates that the entire rental income is to be paid directly to your mother. None of the rental income will be reported on the income tax return for the estate. Instead, your mother will report all the rental income and expenses on Form 1040.
Checking the records and prior tax returns of your parents, you find that they previously elected to use the alternative depreciation system (ADS) with the mid-month convention. Under ADS, the rental house is depreciated using the straight-line method over a 40-year recovery period. They allocated $15,000 of the cost to the land (which is never depreciable) and $75,000 to the rental house. Salvage value was disregarded for the depreciation computation. Before 2017, $23,359 had been allowed as depreciation. (For information on ADS, see Pub. 946.)
If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.
Getting answers to your tax law questions. On IRS.gov get answers to your tax questions anytime, anywhere.
Go to IRS.gov/ITA for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.
Go to IRS.gov/Pub17 Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2017 tax changes, and thousands of interactive links to help you find answers to your questions. View it online in HTML, as a PDF, or download it to your mobile device as an eBook.
You may also be able to access tax law information in your electronic filing software.
The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.
We can help you resolve problems that you can’t resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:
Your problem is causing financial difficulty for you, your family, or your business,
You face (or your business is facing) an immediate threat of adverse action, or
You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.
We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call us at 1-877-777-4778.
The Taxpayer Bill of Rights describes ten basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at TaxpayerAdvocate.IRS.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.
TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/SAMS.
Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. In addition, clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. To find a clinic near you, visit TaxpayerAdvocate.IRS.gov/LITCmap or see IRS Pub. 4134, Low Income Taxpayer Clinic List .
- Basis of property, Basis of Inherited Property
- Character of distributions, Character of Distributions
- Excess deductions, Excess deductions.
- Income received, Other Items of Income
- Liability, estate's income tax, Liability of the beneficiary.
- Nonresident alien, Nonresident alien beneficiary.
- Reporting distributions, How and When To Report
- Successor, Successor beneficiary.
- Treatment of distributions, Distributions to Beneficiaries
- Unused loss carryovers, Unused loss carryovers.
- Claim, credit or refund, Claim for Credit or Refund
- Combat zone, Combat Zone
- Comments, Comments and suggestions.
- Coverdell education savings account (ESA), Coverdell Education Savings Account (ESA), Coverdell education savings account (ESA).
- Death benefits
- Distributable net income, Distributable net income.
- Education savings account, Coverdell, Coverdell Education Savings Account (ESA), Coverdell education savings account (ESA).
- Estate tax deduction, Estate Tax Deduction
- Estimated tax, Estimated tax., Transfer of Credit for Estimated Tax Payments
- Extension to file Form 1041, Extension of time to file.
- Fiduciary relationship, Notice of fiduciary relationship.
- Filing requirements
- Final return for decedent
- Credits, Credits
- Exemption and deductions, Exemptions and Deductions
- Filing requirements, Filing Requirements
- Income to include, Income To Include
- Joint return, Joint Return
- Name, address, and signature, Name, Address, and Signature
- Other taxes, Other Taxes
- Payments, Payments of Tax
- When and where to file, When and Where To File
- Who must file, Final Income Tax Return for Decedent—Form 1040
- 1040NR, Nonresident Alien, Filing Requirements
- 1041, Income Tax Return of an Estate— Form 1041
- 1042, Nonresident alien beneficiary.
- 1310, Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer.
- 4810, Form 4810.
- 56, Notice of fiduciary relationship.
- 6251, Form 6251.
- 706, Estate and Gift Taxes
- SS–4, Identification number.
- Funeral expenses, Funeral expenses.
- Gift, property, Gifts, Insurance, and Inheritances
- Identification number, application, Identification number.
- Community, Community Income
- Distributable net income, Distributable net income.
- Distributed currently, Income That Must Be Distributed Currently
- Interest and dividend, Interest and Dividend Income (Forms 1099)
- Partnership, final return, Partnership Income
- S corporation, S Corporation Income
- Self-employment, Self-Employment Income
- Income in respect of decedent, Income in Respect of a Decedent, Inherited IRAs.
- Income tax return of an estate
- Inherited IRAs, Inherited IRAs.
- Inherited property, Gifts, Insurance, and Inheritances
- Installment obligations, Installment obligations., Installment obligations.
- Insurance, Insurance
- Joint return
- Revoked by personal representative, Personal representative may revoke joint return election.
- Who can file, Joint Return
- Military or terrorist actions
- Claim for credit or refund, Claim for Credit or Refund
- Defined, Military or terrorist action defined.
- Tax forgiveness, Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts
- Notice of fiduciary relationship
- Form 56, Notice of fiduciary relationship.
- Partnership income, Partnership Income, Partnership income.
- Personal representative
- Prompt assessment, request, Request for prompt assessment (charge) of tax.
- Public safety officers, death benefits, Death benefits.
- Publications (see Tax help)
- Release from liability, Request for discharge from personal liability for tax.
- Roth IRA, Roth IRAs.
- Alternative minimum
- Benefits, survivors, Tax Benefits for Survivors
- Estimated, estate, Estimated tax., Transfer of Credit for Estimated Tax Payments
- Payments, final return, Payments of Tax
- Refund of income (claim), Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer.
- Self-employment, Self-employment tax.
- Transfer of credit, Transfer of Credit for Estimated Tax Payments
- Tax help, How To Get Tax Help
- Terrorist action, tax relief, Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts
- Terrorist victim, Specified Terrorist Victim
- Widows and widowers, tax benefits, Qualifying widows and widowers.