Income Tax Treatment
The character of the income you receive is the same as it would be to the decedent if they were still alive. If the income would have been a capital gain to the decedent, it will also be a capital gain to the final recipient.The income must be reported by the person or entity who acquired, from the decedent, the right to receive the income, and must be reported on their tax return.


Examples:
Terry died. A $10,000 fee for advice given was collected after his death. Suppose the fee increased Terry's estate tax liability by $4,000. Terry's estate is allowed an income tax deduction for the estate taxes attributable to the fee collected.

Mr. Rodriguez's estate is the beneficiary of his IRA. At his death, the IRA was valued at $1 million and his taxable estate was $6 million. With the IRA, estate tax is $350,000, and without the IRA, the estate tax is zero ($5 million exemption). As the IRA is distributed to the estate, the estate can reduce any income tax payable by the $350,000 (the estate taxes paid because of the IRA being included).



Sample Questions 1 - 3

Related Articles
  1. Taxes

    Estate Taxes: Who's on the Hook?

    Inheritance taxes can be tricky. Most people have to deal with them at a very inconvenient time. It's better to learn the laws now so you're ready later.
  2. Taxes

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  3. Financial Advisor

    How Life Insurance Can Help Reduce Estate Taxes

    Inheritance is a double-edged sword, as leaving money can create estate tax burdens. Opting for a life insurance plan can help mitigate those burdens.
  4. Retirement

    Estate Planning and Elderly and Passed Clients

    By keeping up with new estate tax rules, financial advisors can help elderly clients save big on tax costs.
  5. Retirement

    How Are Dividends On IRAs Taxed?

    Reinvesting dividends in an IRA is a great way to grow your retirement funds faster, but be sure you understand the potential tax trap.
  6. Retirement

    Should You Convert Your IRA?

    Discover the factors you must weigh to make this decision.
  7. Managing Wealth

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  8. Retirement

    How (And Why) To Open an IRA Now

    Take these simple steps to set up an Individual Retirement Account that will save you tax money and set you up for the future.
  9. Retirement

    Where Your Clients Should Retire (For Tax Reasons)

    Are your clients asking where they should retire? That's a tough call, but here we cover the tax angle.
  10. Retirement

    3 Reasons to Convert Your IRA to a Roth IRA

    Having an IRA is smart. Knowing when to convert it to a Roth IRA is smarter because it can give you and your heirs a welcome tax advantage.
Trading Center