How Are Taxes Handled In Probate?
For federal and state tax purposes, death triggers two events:
- It ends the decedent's last tax year for purposes of filing an income tax return.
- It establishes a new, separate entity for tax purposes, the decedent’s "estate".
For federal tax purposes, it may be necessary to complete and file one or more of the following, depending on the decedent’s income, the size of the estate, and the income of the estate:
- Final Form 1040 Income Tax return.
- Form 1041 Fiduciary Income Tax returns for the estate.
- Form 709 Gift Tax return(s).
- Form 706 U.S. Estate Tax return.
For state purposes, a personal representative must file an Oregon state income tax return, possibly an Oregon inheritance tax return. The requirements for filing and payment of taxes vary widely from state-to-state. In Oregon, for property passing to persons other than a spouse or charitable organization, the amount exempt from inheritance tax is $1 million.
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