The Covid-19 pandemic or other circumstances of death have caused this tax season 2020 to be the last tax return for taxpayers who did not survive to see this new year. The deceased representative, the executor, might have to file the last tax form or forms and wonder how to file their tax return.

 For unmarried decedent, the initial step is to file the last tax return that covers the period from January 1, 2020 through the date of death. 

A surviving spouse can file a joint return for the year of death if the surviving spouse has not remarried during the same year. The surviving spouse will file a joint Form 1040 with the deceased spouse, including the income, deductions, and credits in addition to the surviving spouse income, deductions, and credits for the entire tax year.

 The deceased last tax return must be filed married filing separately in cases where the surviving spouse remarried during the year of death. A surviving spouse might be able to file a joint return for 2 years following the deceased year of death. The benefits of the married filing jointly are extended to a qualified widow or widower for the two tax years following the year of the deceased spouse’s death. Married filing jointly filers benefit from the higher standard deduction available.

 In general, to be a qualified widow or widower for the year, the surviving spouse must be 1) unmarried as of the end of the year, 2) the surviving spouse must also pay more than half the cost of maintaining a home that is the principal home for the entire year of a child of the surviving spouse (including a stepchild) who qualifies as a dependent of the surviving spouse, 3) the surviving spouse must have been eligible to file a joint return with the now deceased spouse for the tax year of the deceased spouse’s death.

Depending on the deceased personal tax obligation and financial situation, the executor, may need to file: 1) the decedent’s final Form 1040, 2) the estate’s Form 1041 income tax return, and 3) the estate’s Form 706.

The executor would not need to file Form 1041 when all the decedent’s income-producing assets bypass probate and go straight to the surviving spouse or other heirs by contract or by operation of law (assets such as real property that is owned by joint tenants with right of survivorship, qualified retirement plan accounts and IRAs that have designated account beneficiaries, and life insurance death benefits that are paid directly to designated policy beneficiaries). If the estate is valued at $11.58 million or less and the decedent did not make any sizable gifts before death, you would not not have to file Form 706. However, even if you do not have to file Form 706, you may want to file it anyway to preserve the portability election.

Complying with the decedent tax obligations is a very important matter that requires close attention to avoid tax problems. An executor would benefit tremendously by seeking advice from a competent tax professional.

Further reading:

  • Treasury Reg. Section 1.6013-1(d).
  • IRC Section 2(a)(1); Treasury Reg. Section 1.2-2(a). 
  • IRC section 213 (c); section 2056, section 2503.
  • Rev. Proc 2017-34.

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