Filing the Final Income Tax Return
By Ken Berry
Losing a loved one is never easy. In addition to the emotional distress, you may have some financial concerns, especially if you’re the executor of the deceased relative’s estate. Which begs the question: Does a tax return have to be filed on behalf of the relative?
The answer—unequivocally—is “yes.” But there’s more to this than first meets the eye.
Basic premise: When someone passes away, the deceased person’s executor or other personal representative (e.g., someone appointed by the court) generally is required to file a federal income tax return for the year of death. (Comparable rules generally apply on the state tax level). The filing status depends on your relationship with the decedent.
If your spouse is the one who passed away, you’re treated as if you were married for the entire year for tax purposes. So, you can file a joint return for the year (or as a married person filing separately). A surviving spouse must sign a joint return. The return will reflect your spouse’s income and deductions prior to their death and yours for the entire year. Otherwise, the basic tax rules still apply.
For example, if your spouse realized a capital loss from the sale of securities, the loss may be used to offset capital gains on a joint return plus up to $3,000 of ordinary income. If there’s any excess loss, however, a surviving spouse can only carry over the portion attributable to their ownership interest. For securities owned jointly, you carry over half the excess loss.
In the event your spouse passed away and you remarry before the end of the same tax year, you can choose to file a joint return with your new spouse. The filing status of your deceased spouse is married filing separately.
Tax break: If you are a surviving spouse you can elect to use the “qualifying widow or widower” status based on joint return rates for two years after your spouse’s death (assuming you don’t remarry). For instance, if your spouse passed away in 2024, you may still benefit from joint return rates for 2025 and 2026. This status will provide a lower tax payment than what have been required for a single filer.
On the other hand, if the deceased person was unmarried, the return is filed on their behalf as a single filer. In some cases, a deceased taxpayer may qualify for favorable “head of household” filing status.
What happens if you’re legally obligated to file a deceased person’s final tax return and you fail to do so? It depends on whether the decedent is in line for a refund or owes the IRS money. The IRS will send a notice to the decedent’s last-known address. And then—
- If the deceased is due a refund, the refund is forfeited.
- If the decedent owes back taxes, the IRS could pursue payment from the executor or possibly even the decedent’s heirs by filing a lien against the estate. Pius, the IRS can tack on interest and penalties for late payment or failure to file. Unlike a refund, the IRS is not simply going to let this go.
If needed, you may file for an automatic income tax extension. Of course, you may also have to address estate tax issues. That is a whole other ballgame.
Practical approach: Seek guidance from your CPA if you’re in this predicament.
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Larry Mancuso February 12 2025 at 11:55 am
I appreciate the information. My wife passed away in 2024. We have always filed as married filed jointly and I will do so again this year as usual using one 1040 form that uses both are incomes for the year 2024. But do I also file yet another 1040 only for my deceased wife using the status married filing single? And if so how do I split interest income from joint mutual funds and money market accounts? And aren't I paying taxes twice in our joint return and her separate return? Confused and appreciate guidance.