![]() If you receive interest that accrued but was not paid prior to the owner's death, however, it is considered income in respect of a decedent and is taxable on your return. Only interest on it from the time you become the owner is taxed. If you inherit a $100,000 certificate of deposit, for example, the $100,000 is not taxable. ![]() Money you inherit is generally not subject to the federal income tax. In such cases, you'll need to report the entire amount on Schedule B of the decedent's return, and then deduct the amount that is being reported by the estate or other beneficiary who actually received the income. ![]() Although you should try to get ownership of the account changed as quickly as possible after the death of the owner, the 1099 income report may well show more income assigned to the decedent than it should. That can create some hassles since the payer-a mutual fund, bank or broker, for example-will report income to the IRS on a 1099 form. Earnings after that date are taxable to the beneficiary of the account, or to the estate. Only interest earned up to that date would be reported on the final tax return. Say a taxpayer who has a substantial amount in money-market mutual funds dies on June 30th. It does not include earnings on savings or investments that accrue after death. Income in respect of a decedent refers to income that the decedent had a right to receive at the time of death, but that is not reported on his or her final return. The distinction is important because some income that might logically seem to belong on the decedent's final return is considered income in respect of a decedent (defined below) and is taxable either to the estate or to the person who receives it. Taxpayers who use the accrual method of accounting, on the other hand, count income as earned when they actually earn it, regardless of when they receive it. Only income earned between the beginning of the year and the date of death should be reported on the final return.įor taxpayers who use the cash method of accounting, as most do, income is considered earned as it is actually received or at least made available to them. The deadline to file a final return is the tax filing deadline of the year following the taxpayer's death. The final return is filed on the same form that would have been used if the taxpayer were still alive, but "Deceased:" is written at the top of the return followed the person's name and the date of death. The filing of the deceased taxpayer's final return usually falls to the executor or administrator of the estate, but if neither is named, then the task needs to be taken over by a survivor of the deceased.
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