A taxpayer who died after 1 January 2020 is eligible for the Recovery Rebate Credit on the 2020 tax return. The credit is only based on 2020 tax return information.
So if your Father-in-law's return shows that he is filing single with an AGI less than $75,000, he will be eligible for all stimulus payments (1200 and 600). Since the 1200 payment was returned, his tax return would indicate that he did not receive any stimulus payments.
An $1800 credit will correctly be added to his tax return.
Here is a link with more information on the Recovery Rebate Credit. See questions B1, B2 and B12.
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