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A "twist" on receiving a 1099 INT for a deceased person

The situation in a nut-shell:

-  During the probate of my Father-in-law's Estate it was discovered that an ibond of significant value was possibly lost, or could have been cashed out - we could not find records.

-  We applied to Treasury Direct to determine the status of the ibond

-  Months later, we were told it had not been cashed out and they sent the full amount with interest.  However this was in the year after the decedent's "final" taxes were submitted (for 2022)

- We received a 1099 INT from the Treasury Dept. for tax year 2023 under the decedent's SS number, but also with his Daughters name listed as the executrix of the decedent's Estate.

- This would be the only income that could be attributed to the Estate as no other "assets" had any income.  The "Estate" has two equal beneficiaries.  

Question is how to handle this 1099 INT in the 2023 tax year in the most economical, and simplest manner?

Thanks

Mark

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8 Replies
DaveF1006
Expert Alumni

A "twist" on receiving a 1099 INT for a deceased person

Since you filed your final return in 2022, I would suggest you amend your 2022 Estate Tax Return to include the 1099 INT interest form, even though it was received in 2023. As you prepare your amendment, you will be asked why you are amending and you can state that this was income received after the final estate was prepared.  This should be sufficient for reporting this income.

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A "twist" on receiving a 1099 INT for a deceased person

David;

I have not yet filed an Estate (1041) return as there was no income to report.  The only tax report made has been my Father-in-laws final return and this 1099 INT came well after his was filed.  So i wonder if this 1099 INT that has is SS number would require either his amended return or a new 1041 Estate filing.  I have home and business, so it appears I'd have to purchase the TT business to do the filing  and use the Estates EIN even though his SS number is what appears on the 1099 INT?

Thanks for your rapid response

Mark

A "twist" on receiving a 1099 INT for a deceased person

@marktm200 

 

The beneficiaries (all two of them) can report the interest on their individual income tax return as income in respect of a decedent (IRD).

 

See https://www.irs.gov/publications/p559#en_US_2022_publink100099684

A "twist" on receiving a 1099 INT for a deceased person

This IRS explanation is the closest I can find in the supplied link:

"U.S. savings bonds acquired from decedent.

 If series EE or series I U.S. savings bonds, owned by a cash method taxpayer who reported the interest each year, or by an accrual method taxpayer, are transferred because of death, the increase in value of the bonds (interest earned) in the year of death up to the date of death must be reported on the decedent's final return. The transferee (estate or beneficiary) reports on its return only the interest earned after the date of death."

 

As the decedent's final return was submitted before the ibonds were "found", this seems to insinuate that his final return would need to be amended and the two beneficiaries would need to pay for the tax consequence.  Note that the total interest amount when cashed out reported on the 1099 INT has no indication of interest before and after death.

Is this and acceptable method by the IRS?  

A "twist" on receiving a 1099 INT for a deceased person

An update - the 1099 INT has the last four digits of the Estate's EIN - so it appears I need to file a 1041.

It's very simple as there is only this 1099 INT and the cost of the probate attorney and a few "qualified" deductions that I've identified.  As I have TT home and business and would need to update to TT business for an Estate filing I'm wondering if I should simply mail in the 1041 form or is there an advantage to upgrade.  I bought the Desktop version at Sam's Club, so if needed how can I upgrade?

RobertB4444
Expert Alumni

A "twist" on receiving a 1099 INT for a deceased person

Open your return and there should be an upgrade button in the bottom right hand corner.  If not then click on 'Help' and the upgrade option is there as well.

 

Efiling processes the return faster but otherwise there is no real advantage to efiling over mailing the return.  You will need to complete the 1041 before you or your sister are able to complete your personal returns.

 

@marktm200 

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A "twist" on receiving a 1099 INT for a deceased person

Another "twist" in this journey;

Home and Business and Business are on different platforms, so I was told I could not "upgrade".  The "help" gal tried unsuccessfully (as I had tried) to find an "upgrade" path from H&B and eventually found that they are not compatible.

I purchased the Business to complete the 1041 Estate filing and found it very intuitive and helpful as it both files the 1041 AND provides the K-1 forms and the letter to beneficiaries to make it all a neat package.

From an Estate filing perspective, well worth the extra $$'s, but now having two separate tax filing platforms can be a bit confusing - short cut icon is the same!  This being the only year with these issues - it's OK!

One additional question.  When asked about distributions to the beneficiaries, I chose to include any disbursements that was related directly to the iBond amounts (used the total iBond, less expenses and divided equally to the two beneficiaries).  There was no "help" pop ups, and the 1041 tax ($0) and the  K-1 tax consequence did not seem to matter  anyway as long the beneficiary disbursements were larger than the interest income.  

Appears I'm done!

A "twist" on receiving a 1099 INT for a deceased person

What you were seeing is the result of the income distribution deduction (IDD, so tax = $0).

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