If the decedent was a cash
method taxpayer, income received (actually or constructively) by the
decedent prior to death is reported on the decedent’s final Form 1040.
If the decedent was an accrual taxpayer, income accrued prior to death is
reported on the final Form 1040. After-death income is reported on the
return of the recipient of the income.
—Estate Income: Income
earned on decedent’s assets during the time they are held by the probate
estate is reported on the estate income tax return (Form 1041). This
period begins on the date of death and generally ends when the assets are
distributed to the beneficiaries. Income in respect of the decedent paid
to the decedent’s estate and capital gains and losses on assets sold by
the estate are also reported on Form 1041.
—Beneficiary Income: Even
if probate is required for some assets in an estate, other assets may
bypass probate and be paid directly to a surviving joint tenant, payable-on-death designee, or beneficiary. Taxable income from these
nonprobate assets is reported on the recipient’s Form 1040, not on the
estate’s Form 1041.
Incorrect Form 1099s and Nominee
Recipients: Payers of income commonly issue one Form 1099 for the
entire calendar year; even though income paid through the date of death is
reportable to the decedent, and income paid after death is reportable to
the estate or other recipient.
If a Form 1099 includes both before and
after death income, the Form 1099 recipient reports the income as follows:
• List the entire income from the
Form 1099 on the appropriate schedule of the recipient’s Form
1040.
• On a separate line, subtract the income
that belongs to the decedent or other beneficiaries. Label the subtraction
"Nominee Distribution."
• Issue Form 1099 to the decedent or to
each beneficiary using the same type of Form 1099 as received.
• File Forms 1099 and 1096 with the IRS.
