Concise Takeaway
A decedent’s final Form 1040 reports income up to the date of death. Filing status, income inclusion, deductions, credits, IRD rules, and signature requirements all follow specific IRS procedures.
When a Final Return Is Required
A final income tax return must be filed if the decedent met filing requirements at the time of death.
Key points:
- If death occurs during filing season, the normal April 15 deadline applies to the prior‑year return.
- The final Form 1040 is due when it would have been due had the decedent lived.
- Calendar‑year decedents generally have a final return due April 15 of the following year.
Filing Status Rules
If married at death, the decedent is considered married for the entire year.
- A surviving spouse who does not remarry may file MFJ with the decedent.
- If the surviving spouse remarries, the decedent must file MFS, and the surviving spouse may file MFJ with the new spouse.
- A court‑appointed personal representative may revoke a joint return election by filing a separate return for the decedent within one year of the due date.
Income to Include on the Final Return
Income is reported as if the decedent were alive, but only through the date of death.
Cash Method
Include amounts:
- Actually received before death
- Constructively received (e.g., matured bond coupons)
Do not include dividends declared but not yet received if the decedent died before delivery.
Accrual Method
Include income earned before death.
Income in Respect of a Decedent (IRD)
IRD is income the decedent would have received had death not occurred and was not included on the final return.
IRD is taxable to:
- The estate, if it receives the income
- The beneficiary, if the right to income passes directly
- Anyone who receives the right to the income from the estate
IRD retains the same character it would have had to the decedent.
If Form 706 was filed, the taxpayer reporting IRD may claim a deduction for estate tax attributable to IRD.
Medical Expense Deductions
- Medical expenses paid before death are deductible on the final return if itemized.
- Medical expenses paid by the estate within one year after death may be treated as paid by the decedent if the executor elects.
- If elected, these expenses are deducted on the final Form 1040 rather than Form 706.
Loss Deductions
Only the final return may claim:
- Net operating loss carryovers
- Capital loss carryovers
Unused losses do not carry over to the estate.
Credits
Credits the decedent qualified for before death may be claimed on the final return, including:
- Earned Income Credit
- Child Tax Credit
Credits apply even though the tax year is shorter than 12 months.
Terrorist or Military Action Forgiveness
Tax liability is forgiven if the decedent:
- Was a member of the U.S. Armed Forces, and
- Died from wounds or injuries incurred in a terrorist or military action
Forgiveness applies to:
- The year of death
- Any earlier year beginning with the year before the injury year
Amounts that would have been taxable to the decedent are not taxable to beneficiaries.
Signing the Final Return
- If a personal representative is appointed, they must sign.
- If filing jointly, the surviving spouse must also sign.
- If no representative exists, the surviving spouse signs and writes “Filing as surviving spouse.”
- If no spouse exists, the person in charge of the decedent’s property signs.
Write “DECEASED,” the decedent’s name, and date of death at the top of the return.