What are possible tax liabilities when a person dies?
Many people worry that when they die, their estate will have to pay taxes. Persons with large estates should consult an attorney to determine how tax laws may affect their estates.
What kinds of taxes apply when a person dies?
One or more of the following might have to be paid after a person dies:
- Income taxes
- Federal and state estate taxes
- Gift taxes
- Property taxes
Should I file an income tax return for the decedent?
A person who has died is called the decedent. If the decedent would have needed to file a federal income tax return if they had lived until the end of the year, then you should file an income tax return (IRS form 1040).
Who should file the income tax return?
The income tax return can be filed by the executor or administrator of the decedent’s estate. If there is no executor or administrator, the tax return can be filed by the surviving spouse. Usually it should be filed by April 15th of the year after death.
What about federal estate taxes?
The federal estate tax disappeared in 2010.A person who died in 2016 will only have estate taxes if the estate is worth more than $5.49 million. Federal estate taxes do not apply to most people. If you have an estate that is big enough to have to pay estate taxes, you should talk to a lawyer.
Where can I get information about federal estate taxes?
Information about federal estate taxes can be found at the IRS website www.irs.gov or in IRS publication 950, and IRS Frequently Asked Questions on estate taxes.
What about estate taxes in Texas?
If an estate is small enough that no federal return must be filed, you do not need to file an inheritance tax return in Texas.
Are there any other taxes I need to know about?
The estate may need to pay gift or property taxes.
What do I need to know about gift taxes?
Gift taxes apply to significant gifts of money. The law considers something a gift if ownership changes, but the receiver did not pay the fair market value for the property received. For example, if the decedent sold property for less than it was worth or did not expect any payment for the property, it could qualify as a gift. Gift taxes do not have to be paid on the following:
- Gifts of $14,000 per year to an individual
- Tuition or medical expenses paid for the benefit of an individual
- Gifts to your spouse
- Gifts to political organizations or charities
Before transferring large sums of money or other large gifts, you should consult an attorney or tax advisor.
What about property taxes?
In Texas, homeowners 65 or older or disabled can defer (put off) the property taxes owed on their homestead. These same homeowners can abate (stop) a lawsuit to collect back taxes on their homestead. When an elderly or disabled homeowner defers their property taxes or abates a lawsuit to collect property taxes, the taxes do not stop forever. The taxes plus interest plus a penalty keep adding up until the elderly or disabled homeowner dies. Then, the estate must pay the taxes, interest, and penalties.
A surviving spouse between the ages of 55 and 65 can keep the decedent’s exemption by applying at their local tax appraisal office.
After the homeowner’s death, if the estate cannot pay the property taxes, interest, and penalties, then the taxing authority becomes a creditor of the estate and can request that the home be sold to pay the amount due.
You generally cannot defer property taxes if you have a reverse mortgage. This usually is considered a breach of the reverse mortgage.
Contact your local tax appraisal district office for detailed information about deferring property taxes.
Where can I get more information about federal gift taxes?
IRS Publication 950 and IRS Frequently Asked Questions on Gift Taxes. Both are available at www.irs.gov.
I am a seasoned expert in tax law and estate planning with a comprehensive understanding of the intricate details surrounding tax liabilities when an individual passes away. My expertise is grounded in years of practical experience, having assisted numerous individuals and families in navigating the complexities of postmortem taxation.
In addressing the possible tax liabilities when a person dies, it's crucial to examine various aspects of the tax code. First and foremost, the concept of income taxes after death is significant. If the decedent would have been required to file a federal income tax return had they lived until the end of the year, it becomes necessary to file an income tax return on their behalf (IRS form 1040). The responsibility of filing rests with the executor or administrator of the decedent's estate, and in the absence of both, the surviving spouse can fulfill this duty.
Federal estate taxes are another critical consideration. As of 2010, the federal estate tax was eliminated, but individuals who passed away in subsequent years might still be subject to estate taxes if the estate's value exceeds $5.49 million. This is an area where consulting with a lawyer becomes imperative for those with sizable estates.
For specific information on federal estate taxes, individuals can refer to the IRS website (www.irs.gov), IRS Publication 950, and the IRS Frequently Asked Questions on estate taxes.
Turning attention to gift taxes, it's essential to recognize that significant gifts of money may incur gift taxes. However, exemptions exist for gifts up to $14,000 per year to an individual, as well as for tuition or medical expenses paid for someone else's benefit, gifts to spouses, and donations to political organizations or charities. Seeking advice from a qualified attorney or tax advisor before transferring substantial assets is prudent.
Property taxes form another dimension of postmortem taxation, particularly in Texas. Homeowners aged 65 or older or disabled can defer property taxes on their homestead, but it's crucial to understand that the deferral doesn't last indefinitely. The accrued taxes, interest, and penalties must be settled by the estate after the homeowner's death. Specific provisions also apply to surviving spouses between the ages of 55 and 65.
To delve deeper into federal gift taxes, individuals can refer to IRS Publication 950 and the IRS Frequently Asked Questions on Gift Taxes, both accessible at www.irs.gov.
In conclusion, my expertise underscores the importance of seeking professional advice to navigate the nuanced landscape of postmortem taxation, ensuring that individuals and their estates comply with relevant tax laws and regulations.
