What Is the Estate Tax Deduction?

Once you pass away, it is possible that those who are tasked to administer your final affairs are going to be responsible for making the necessary payments on your behalf, including your revocable trust or estate, expenses, a variety of expenses, and many other forms of financial obligations. These might include the expenses for your funeral, your remaining debts at the time of your demise, and the required expenses for administering your estate.

Good thing that it is possible to deduct these expenses from your estate tax return that can then help your family enjoy estate tax savings. What is even better is if you don’t owe an estate tax during the time of your death, most of the expenses will be considered as income tax deductions instead that will translate into income tax savings that your family can take advantage of.

But, it is a must that those administering your estate are familiar with the rules for them to obtain the available tax savings.

Types of Expenses Qualified as Estate Tax Deductions

• Administration expenses

These are the costs incurred for administering your final affairs and can also be deducted for estate tax purposes. The deductible expenses consist of accounting fees for the preparation of your final income tax return, your estate tax return, and income tax returns for your trust or estate.

These also include executor fees, attorney fees, probate costs, and trustee fees required for administering your affairs and property.

• Funeral expenses

Common examples of these include cemetery and funerals charges as well as payments to the officiating strategy. Lastly, these administration expenses also include the rest of miscellaneous expenses appraisal fees as well as expenditures for maintaining the good condition of the property before it is distributed to the beneficiaries.

• Mortgages

The indebtedness that a mortgage has secured on the real estate under your ownership at the time of your death is also qualified for estate tax deductions. For instance, if your home has a mortgage worth $100,000 during the time of your death together with $25,000 worth of additional home equity loan, a $125,000 deduction could be taken on the estate tax return.

• Claims

Claims refer to the amounts that you owe at the time of your death that your estate has the legal obligation of paying. These can include items that include credit card balances that you owe during the time of your death, the final utility months for the month of your death, and the rest of the financial obligations that you incurred yet remain to be unpaid at the time of your death. These will also include the income taxes that are due for your earned income during the year when you died.

Aside from deducting the earlier expenses, the rest of the casualty losses, like theft losses and the losses that result from a flood or fire that occur during your estate’s administration that the insurance doesn’t compensate otherwise can be deducted for the purposes of the estate tax.