Final Income Tax Return for a Decedent

The final income tax return for a decedent is the individual income tax return, Form 1040 or 1040-SR, filed for the portion of the calendar year the person was alive. IRS Publication 559 states the duty: "The personal representative ... must file the final income tax return (Form 1040 or 1040-SR) of the decedent for the year of death and any returns not filed for preceding years." Internal Revenue Code section 6012(b)(1) places that duty on the executor, the administrator, or any other person charged with the decedent's property, which is why it exists even where no court ever appoints anyone.

It is one of two income tax returns commonly in play after a death and it is the narrower one. This return reports what the decedent received while alive. The estate's own return, Form 1041, reports what the estate earns afterwards, and the estate tax return, Form 706, is not an income tax return at all.

The period is the whole point, and the accounting method decides its edges. For a cash-method taxpayer, which nearly every individual is, only amounts actually or constructively received before death go on the return. Publication 559 gives the fine cases: interest on matured but uncashed coupons was constructively received and belongs on the final return, while a dividend declared before death but still in the mail when the person died was not, and does not. For an accrual-method taxpayer, only items normally accrued before death are included. Whatever falls outside becomes income in respect of a decedent and is reported by the estate or by whoever collects it.

A return for the preceding year is not the final return. If someone dies after the close of a tax year but before filing for it, that earlier return is an ordinary return that the personal representative must file, and the final return is the separate short-period one for the year of death. Two filings, two deadlines.

The deadline is the ordinary one, and this is where the nine-month rule gets misapplied. The final return is due when the decedent's return would have been due had death not occurred, so a calendar-year taxpayer's final return is generally due on 15 April of the following year regardless of when in the year the death happened. Nine months is the estate tax deadline and belongs to a different return. A personal representative can also obtain a filing extension on the decedent's behalf.

The standard deduction is not prorated. Publication 559 is explicit: "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." Filing status is likewise determined for the whole year rather than by the number of days lived, which is a meaningful benefit on a return that may cover only a few weeks of income.

Joint filing, and the two conditions people get wrong. The personal representative and the surviving spouse can generally file a joint return for the year of death, and the surviving spouse can file it alone if no personal representative has been appointed before the due date. Two limits apply. First, a joint return with the decedent is unavailable if the surviving spouse remarried before the end of the year of death, in which case the decedent's status is married filing separately. Second, a court-appointed personal representative may revoke a joint return the surviving spouse filed alone, by filing a separate return for the decedent within one year from the due date including any extensions; the surviving spouse's joint return is then treated as their own separate return.

Two deductions available on this return and almost nowhere else. Medical expenses the decedent had not paid are ordinarily liabilities of the estate and are deducted on the estate tax return. But where they are paid out of the estate during the one-year period beginning the day after death, the personal representative may elect to treat them as paid by the decedent when incurred, which moves them onto the final return as itemized deductions. And where an annuitant dies before recovering their whole investment in an annuity, section 72(b)(3) allows a deduction for the unrecovered amount on the final return; section 67(b)(10) keeps that deduction out of the suspended miscellaneous itemized category.

Refunds have their own form. Where the return shows a refund, Form 1310 is generally required to claim it. Publication 559 names two exceptions: a surviving spouse filing an original or amended joint return with the decedent, and a court-appointed or certified personal representative filing the decedent's original return with a copy of the court certificate attached. Where the personal representative is claiming a refund on Form 1040-X or Form 843 instead, the court certificate must be attached to Form 1310 even if it was filed with the IRS before.

1. Establish the period: 1 January of the year of death through the date of death. Check separately whether the prior year's ordinary return was ever filed.

2. Include only income received, or accrued under an accrual method, before death. Anything received afterwards is income in respect of a decedent.

3. Choose the filing status. A joint return with the surviving spouse is usually available and usually better, subject to the remarriage bar.

4. Take the full standard deduction, or itemize, including any medical expenses brought back by election.

5. Write "DECEASED," the decedent's name and the date of death across the top of the return. Do not attach the death certificate; keep it and produce it if asked.

6. Sign as personal representative, or jointly with the surviving spouse, and file by the ordinary due date. Attach Form 1310 if a refund is claimed and neither exception applies.

A hypothetical. Yusuf, unmarried and on the cash method, dies on 9 April. Between 1 January and that date he received $34,000 of pension payments and $1,200 of interest credited to his savings account, for $35,200 of income on the final return. On 20 April his former employer pays out $6,000 of unused vacation he had earned before he died.

That $6,000 does not go on the final return. He never received it, so it is income in respect of a decedent and is reported by whoever collects it. Against the $35,200 the return claims the full standard deduction for a single filer, not the 99/365 of it that the 99 days he lived might suggest, and the return is due the following 15 April rather than nine months after the death.

Pros

• The full standard deduction on a short period often means little or no tax on the final return, and frequently a refund.

• A joint return for the year of death lets the surviving spouse combine a full year of their own income with the decedent's part-year income under the joint rate schedule.

• The medical expense election gives the estate a choice between the income tax and estate tax deduction, and can be split between them.

• The section 72(b)(3) deduction rescues an annuity investment the annuitant did not live long enough to recover.

Cons

• It is easy to miss entirely, because families expect a nine-month clock and the real deadline is the ordinary one.

• Splitting income between this return and the estate's return requires reading Forms 1099 that do not respect the date of death, and asking payers for corrected ones.

• A refund claim usually needs Form 1310 and, for a court-appointed representative filing an amended return, a court certificate as well.

• A surviving spouse who remarried during the year of death loses joint filing with the decedent, which can be an expensive surprise.

• The personal representative signs under penalties of perjury for a year they may know very little about.