Tax Year 2015: What happens if a person dies in 2015 and receives a $1600 state refund on their final 1040? Does this amount need to be reported ?

[timothyd1958]

Yes,  I'm preparing an estate tax return (1041) as of 02/28/2016.  The $1,600 state refund will be paid in sometime in 2016.

[timothyd1958]

Just o be clear,  the $1600 state refund is from the final 2015 personal tax return.

[KarenL2]

Thanks.  Let me clarify how it actually works and I'll edit my answer below.  All income received after the date of death is income to the estate if it is taxable income.  

If there is a state tax refund that would have had to be included as "taxable income" on the decedent's tax return, then it should be included on the estate tax return if received after the date of death. So, assuming the person itemized deductions on Schedule A on the 2015 tax return, that refund would be taxable income.  If the person who passed did not itemize deductions on Schedule A, then it does not need to be included.  This is rare if a 1099-G is issued.  

Therefore, if you prepare a Form 1041 for the 2016 tax year (due in 2017) and a 1099-G is received, it is likely taxable income. This is true only if the decedent's final return had itemized deductions and a benefit for state income taxes paid were included on the Schedule A for that tax return.   I hope this helps to clarify it for you.

[timothyd1958]

This does answer my question,  however the Form 1041 is due by 06/15/2016 and I just file the final 1040 this week.  Also, the person did an itemized deductions on Schedule A on the 2015 tax return.

[KarenL2]

Will there be any other income in the 2016 tax year besides the state income tax refund?  Why is the estate tax return only beginning on February 28th, 2016 if the person passed away in 2015?

[KarenL2]

It does not need to be reported unless there is an estate tax return (Form 1041) being prepared for 2016. If there is, you would include it so it can be distributed to the beneficiaries appropriately.  Also, I am assuming you mean that the $1,600 state refund will be paid in 2016.  If there will be no estate tax return, then it does not need to be reported anywhere.

If there is a state tax refund that would have had to be included as "taxable income" on the decedent's tax return, then it should be included on the estate tax return if received after the date of death. So, assuming the person itemized deductions on Schedule A on the 2015 tax return, that refund would be taxable income on the 2016 estate tax return.  If the person who passed did not itemize deductions on Schedule A, then it does not need to be included. 

[Tma]

You're talking about an estate income tax return not an estate tax return.