1099-Int for deceased person

[Goodfoodchef]

Hi! I received in the mail a 2024 1099-INT for a savings account in my deceased mother's name. I was not aware of the account. She passed in August 2023. There was no estate, so I filed her 2023 1040 as her last return. 

I called the bank and they sent a packet of paperwork to complete, and once completed, the interest will be transferred to me (I think I was the beneficiary on the account). 

I've rooted around on here about this topic but there is conflicting advice. I have not yet filed my 2024 return. Since the money is transferring to me, should I include it on my return? If so, what additional steps should I take? I read something about a form 1096 and creating a 1099 as my mother being the payer. 

Many thanks!! 

[JO236]

Since you are the beneficiary, this would be considered a gift or inheritance.  Unless it is a substantial amount, it would not need to be reported.  The important thing is to transfer the account in full over to you so it doesn't happen again in the future.  All future interest would be your responsibility.  Disclaimer:  I am not an attorney or a CPA but I have had to settle many estates unfortunately.  

[M-MTax]

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@Goodfoodchef wrote:

.....should I include it on my return?....

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Yes, include it on your return; it is IRD (income in respect of a decedent) which gets reported on the return of whoever (or whatever, like an estate form 1041) receives the income.

There is really nothing else you need to do beyond reporting the income on your return.

Sorry for your loss.

[Opus 17]

Was interest credited to the account throughout the year?  If so, interest credited to the account between 1/1/23 and the date of death is taxable to your mother (even if she did not withdraw it, and even if you did not know about it).  You should file an amended 2023 return to report the extra income on your mother's tax return.

Interest credited to the account after the date of her death is "income in respect of a decedent", assuming you are the person legally entitled to the money as her heir or representative.   You can report it on your tax return as if it was paid directly to you.  You do not need to issue any 1099 or 1096 forms.  If you received the 2023 and 2024 interest in 2024, it is 2024 income.  Report it as regular interest income.

If the amount that is taxable to you is less than reported on the form (because of the date issue I discussed), there are three ways to adjust it.

1. If you file by mail, attach a copy of the 1099-INT and a written explanation of why only part of the money is taxable to you.

2. If you are using Turbotax desktop version, switch to forms mode, go to schedule 1, and enter the adjustment on the line 24z worksheet with a one-sentence explanation ("interest reported as taxable by original account owner".)

3. If you are using turbotax online, go to the section on other miscellaneous income" and enter a negative adjustment with the same explanation.  This will go on line 8z, which is not correct per the IRS but is an acceptable workaround when using turbotax online because you can't access line 24z.

Lastly, if the amount is small and you don't mind paying tax on all of it, you could probably just ignore the amending issue and report the entire amount as taxable to you in 2024.  Depending on your mother's income and your income, you might pay more tax this way, but it would be easier, if not technically correct.   You still don't issue any paperwork, it is still "income in respect of a decedent." 

[M-MTax]

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@JO236 wrote:

Since you are the beneficiary, this would be considered a gift or inheritance.  Unless it is a substantial amount, it would not need to be reported.

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This is interest income and needs to be reported by whoever received it as IRD.

The account doesn't need to be reported but the interest earned certainly does.

[Opus 17]

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@JO236 wrote:

Since you are the beneficiary, this would be considered a gift or inheritance.  Unless it is a substantial amount, it would not need to be reported.  The important thing is to transfer the account in full over to you so it doesn't happen again in the future.  All future interest would be your responsibility.  Disclaimer:  I am not an attorney or a CPA but I have had to settle many estates unfortunately.  

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No.  The principal in the savings account is tax-free inheritance, but interest income paid to the mother before her death is taxable on the mother's return and interest paid after her death is taxable income on the heir's return.  

[Goodfoodchef]

Thank you! Just a bit more to make sure I understand...

The interest was credited to the account in my mother's name for all of 2023 (the year of her death, she passed in August 2023). I filed her 2023 return (last return) and included the entire amount of interest. The bank issued a combined 1099 statement, and though I did close our joint account, in my haste I neglected to close the account that was in her name alone. That account continued to earn interest for all of 2024 (and up until this week when I received the 1099 and realized something was amiss). It is about $4000 of interest. I have no idea how we let this slip through the cracks. 

It sounds like the easy route is just to report the interest on my 2024 return. Is that correct? Using TT, where would I include this amount? 

[Opus 17]

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@Goodfoodchef wrote:

Thank you! Just a bit more to make sure I understand...

The interest was credited to the account in my mother's name for all of 2023 (the year of her death, she passed in August 2023). I filed her 2023 return (last return) and included the entire amount of interest. The bank issued a combined 1099 statement, and though I did close our joint account, in my haste I neglected to close the account that was in her name alone. That account continued to earn interest for all of 2024 (and up until this week when I received the 1099 and realized something was amiss). It is about $4000 of interest. I have no idea how we let this slip through the cracks. 

It sounds like the easy route is just to report the interest on my 2024 return. Is that correct? Using TT, where would I include this amount? 

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If you reported all the 2023 interest on her tax return, that was technically incorrect, but a relatively harmless error.

If you are her heir, or the person legally entitled to this income, then you would report the 2024 interest on your 2024 tax return as if it was paid directly to you.  There is a specific section for interest income.  If the 1099-INT is in her name, you would report the interest but check the box for "I did not get a 1099-INT."  If the 1099-INT is in your name, report it like any other bank interest. 

[Goodfoodchef]

Thank you! Yes, I had a feeling I did it incorrectly in 2023 (probably one of many errors I did during that period). 

I'm mailing the letter of intent, death certificate, and transfer instructions to the bank, after which the money will be transferred to me (as the sole beneficiary). This is for sure my oversight that has lingered for over a year, but I'm actually surprised the bank didn't catch this. 

I'll do as you suggested and report the 2024 interest on my return as interest income and check the box that I didn't receive a 1099. 

Thank you kindly for your time and expertise! Much appreciated!