The final tax return: the last Form 1040 for someone who has died

Of all the paperwork that follows a death, the final individual income tax return is the one families are most likely to know exists and least likely to understand the shape of. It is not a special form. It is the same Form 1040 — or 1040-SR — the person filed every year, covering a year that ended early.

The federal rules governing it are published by the IRS in Publication 559, "Survivors, Executors, and Administrators," and they are narrower and more specific than most people expect. What follows is what those rules say. It is a description of the federal system, not guidance about any particular estate — the facts that decide how these rules land on a given family are exactly the facts an article cannot see.

What the return covers, and when it is due

Death ends the person's tax year. The final return covers the period from the first day of that year through the date of death, however few days that is. Publication 559 puts the deadline plainly: the final income tax return is due at the same time the decedent's return would have been due had death not occurred. For a calendar-year taxpayer that is generally the ordinary spring filing deadline in the following year, regardless of when during the year the death occurred. A death in January and a death in December produce final returns due on the same day.

Who files it

Publication 559 assigns the job: the personal representative files the final income tax return of the decedent for the year of death, and any returns not filed for preceding years. "Personal representative" is the IRS's umbrella term — an executor, an administrator, or anyone else in charge of the deceased person's property. Where there is a surviving spouse and no personal representative has been appointed before the due date, the surviving spouse alone can file the joint return.

That joint return is the part families ask about most. Generally the personal representative and the surviving spouse can file jointly for the year of death, and what goes on it is asymmetric: the decedent's income up to the date of death, and the surviving spouse's income for the entire year. One condition sits underneath it. A final joint return cannot be filed if the surviving spouse remarried before the end of the year of the death; in that case the decedent's filing status is married filing separately.

The small differences that apply only here

• The word "DECEASED," the decedent's name, and the date of death are written across the top of the return.
• The standard deduction is not prorated for a short year. Where deductions are not itemized, Publication 559 states that the full amount of the appropriate standard deduction is allowed regardless of the date of death.
• The death certificate is not attached to the return. The instruction is to keep it and provide it if it is requested.
• A refund on the final return generally requires Form 1310, "Statement of Person Claiming Refund Due a Deceased Taxpayer." There are two exceptions: a surviving spouse filing an original or amended joint return, and a court-appointed personal representative filing the original return with a copy of the court certificate of appointment attached.

Which income belongs on it, and which does not

This is where the confusion concentrates, and the answer turns on a detail most people have never had to think about: the method of accounting the person used. Most individuals are cash-method taxpayers, and for them only the items actually or constructively received before death go on the final return.

The IRS's own examples show the line best. Interest from coupons on the decedent's bonds that matured during the final tax year but were never cashed was constructively received, and belongs on the final return. A dividend that a corporation declared before the death but mailed afterwards was not — if the person died between the declaration and the arrival of the check, that dividend does not go on the final return.

Income in respect of a decedent

Everything the person would have received had death not occurred, but which was not properly includible on the final return, has a name in the tax code: income in respect of a decedent. A last paycheck. A commission earned but unpaid. The proceeds of a sale completed but not yet settled.

That income does not disappear and it is not tax-free. It is reported by whoever ends up receiving it: the estate, if the estate receives it; the beneficiary, if the right to the income passed directly to them and they received it; or any person to whom the estate properly distributes the right. Its character carries over as well — what would have been a capital gain to the person who died is a capital gain to whoever receives it.

What a surviving spouse may be entitled to afterwards

A surviving spouse can file jointly for the year of death, and may qualify for a filing status called qualifying surviving spouse for the two tax years after it, which allows the married-filing-jointly rates. The requirements are specific: entitlement to file a joint return for the year of death, whether or not one was actually filed; no remarriage before the end of the tax year in question; a child, stepchild or foster child who qualifies as a dependent; and payment of more than half the cost of maintaining a home that is that child's principal residence for the year.

What an article cannot tell you

Two things sit outside all of the above. The first is state income tax, which follows its own rules and its own deadlines and is a separate filing from the federal one. The second is the specific facts of a particular person's last year — the accounting method, the timing of a payment, whether an amount was constructively received — which is where nearly all of the real difficulty lives.

A final return with income in respect of a decedent in it, or a joint return in the year of a death, is a return where a credentialed tax professional — a CPA or an enrolled agent — is looking at something they see routinely and most families see once. Nothing here is a substitute for that, or for the current-year instructions to the forms themselves, which the IRS publishes free and which are the actual authority.