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If your spouse or another family member passes away during the year, a tax return may have to be filed for him or her.
If the deceased person met any of the filing thresholds for the year so that he or she would have been required to file a tax return if alive, then a final return for the year of death must be filed.
What income is included, in determining whether the thresholds are met and in filing the tax return itself? On the final income tax return, you report only income that the decedent received (for cash-basis taxpayers) or accrued (for accrual-basis taxpayers) up to the date of death. Any income received or accrued after that date is ordinarily reportable on the estate's income tax return. If the account is transferred immediately to another beneficiary (such as to the joint owner on a bank account), the beneficiary must report any income earned after the date of death.
If the decedent receives any year-end 1099 forms from banks, savings and loans, brokerages, mutual fund companies, or other financial institutions reporting interest or dividends earned both before and after death, the institutions must be contacted so they can correct their records and issue corrected 1099 forms. Special care should be taken to make sure that the new 1099 forms correctly allocate the amounts between the final individual return and the estate or beneficiary's income tax return.
If the decedent had a capital loss in the period before death, it can be netted against capital gains. Any remaining loss up to $3,000 can be deducted on the final return; if the loss exceeded $3,000, the remainder cannot be deducted by the estate or carried over to any succeeding tax years.
If you must file a tax return for a deceased family member, you need to know: