How are taxes handled in probate?

For federal and state tax purposes, death means two things:

  • It marks the date of the close of the decedent’s last tax year for filing an income tax return, and
  • It establishes a new, separate entity for tax purposes, the “estate.”

For federal taxes, you may have to fill out and file one or more of the following forms. (It depends on the decedent’s income, the size of the estate, and the income of the estate):

  • Final Form 1040 Federal Income Tax return (the decedent’s personal income tax return)
  • Form 1041 Federal Fiduciary Income Tax returns for the estate
  • Form 709 Federal Gift Tax return(s)
  • Form 706 Federal Estate Tax return

For California taxes, the executor must file any needed state income tax return, state fiduciary income tax returns during the probate period, estate tax and gift tax returns.

There may be other taxes, too, like local real estate and personal property taxes, business taxes, and any special state taxes.

The executor must also check for taxes owed for years prior to the decedent’s death.

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