Paying Taxes From ProbateD Estate

An executor has many duties, including paying taxes (sometimes multiple kinds of taxes), and there are various required IRS forms required when paying those taxes. Here’s a breakdown:

Decedent Income Tax Returns

As executor, you are responsible for filing personal income tax returns for the decedent. These returns are due on the same date everyone’s personal income tax return is due (typically April 15th) and must be submitted by the due date in the year after the decedent’s death. The final tax return will cover the preceding year until the date of death, after which the estate becomes responsible for its own taxes and must submit its own return.

IRS publication 559 provides instructions for filing decedent income tax returns. You can also use tax software like TurboTax or employ the services of an accountant for guidance.

If the decedent had not yet filed tax returns for any years before their death, you are also responsible for filing those tax years by their regular due dates. However, if they did file a return for that year and are due a refund, you can collect it by filing IRS Form 1310.

Filing considerations:

• Minimum income: a tax return only needs to be filed if the decedent’s earnings exceeded the minimum amount set by federal and state law.
• Medical deductions: if the decedent incurred significant medical costs the year they passed away, you may be able to deduct many of those expenses. To qualify, the decedent must have paid those expenses before they died, or the estate must pay them within one year of death.
• Surviving spouse: if the decedent is survived by a spouse who has not remarried, the final personal income tax filing may be made as a joint return, which usually lowers taxes compared to filing individually. Under certain circumstances, the surviving spouse may be able to continue filing joint returns for an additional two years.
• Revocable living trusts: any income received during the portion of the tax year the decedent was alive should be reported on the final income tax return. Once all owners of a revocable trust pass away, the trust converts to an irrevocable trust. It is then considered a taxpayer and is responsible for filing its own tax returns going forward.

Annual Estate Income Tax Returns

If an estate earns over a minimum amount (around $600), it must file a federal IRS Form 1041 in the year it earned the income. You’ll also need to file the corresponding state form if you file a federal form.

Annual Property Taxes

If the estate contains real property, any relevant property taxes must be paid by you until the property is either distributed or sold to the heirs. Property taxes are often due in two installments during the calendar year, although due dates vary widely by jurisdiction.

Annual Trust Tax Filings

After death, income from a living trust begins accruing for the benefit of trust beneficiaries, and the trust must report any income it distributes. Any income not distributed in a given year must be handled via the trust’s own federal and state tax filings. Bear in mind that managing a trust is the responsibility of the trust trustee, not the estate executor.

The “Big Estate” Tax

If the gross estate value exceeds a specified amount ($12.06 million in 2021), federal estate tax Form 706 is required. Filing the form doesn’t mean the estate will owe any taxes since taxes are calculated on an estate’s net value. “Big Estate” tax payments can become very complex. Using the services of an estate tax attorney and CPA is advised.

Inheritance Tax

An inheritance tax is levied on amounts distributed to individual heirs. There is no federal inheritance tax, but several states enforce their own inheritance taxes (there are no inheritance taxes in Texas).

Questions Concerning Probate and Real Estate?

Certain aspects of settling an estate, like handling an estate’s real estate holdings, may be outside your area of expertise or comfort zone. If in doubt, work with a professional.

If you have questions concerning probate and real estate in Tarrant, Parker, Wise, Collin, Denton, or Dallas County, contact David Pannell and Cities Real Estate. David has extensive experience helping families with their real estate needs before, during, and after the probate process.

David has been an agent/realtor since 2005. He has served as a United States Marines, City of Arlington police officer, and is a dedicated family man. You can trust him to put your interests first in any and all situations.

Call David today at (817) 797-9047 for help with your real estate and probate needs. You will be treated respectfully, and your requirements will be met efficiently and confidentially.