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Deductible estate expenses

Settling an estate can be costly, but certain estate expenses may be tax-deductible. Understanding which expenses qualify for deductions can help executors manage estate finances efficiently and minimize tax liabilities. Below is a guide to deductible estate expenses in Texas.

What Are Tax-Deductible Estate Expenses?

When a taxpayer passes away, their final income tax return and the estate tax return (if required) may include deductions for specific expenses. These deductions typically fall into three categories:

  • Expenses fully deductible in the final return
  • Deductions linked to specific estate income
  • Credits and deductions split across multiple returns (subject to limits)

Certain unused deductions may be transferred to a surviving spouse, reducing the overall tax burden.

Estate Administration, Maintenance, and Management Costs

Executors are responsible for maintaining the estate during probate, which includes:

This process is typically used when:

  • Property taxes on real estate owned by the deceased
  • Homeowner’s insurance premiums
  • Cleaning, maintenance, and repair costs
  • Utility payments for estate properties
  • Closing costs for property sales
  • Storage fees for personal property
  • Vehicle insurance and maintenance costs (for estate-owned vehicles)

These expenses are deductible if paid directly by the estate rather than the executor.

Medical Expense Deductions

Medical expenses incurred before death can be deducted on the deceased’s final income tax return. The IRS allows:

  • Deduction of medical costs paid within 24 monthsbefore the date of death.
  • Coverage for expenses related to hospital stays, prescriptions, treatments, and long-term care.
  • Unused medical deductions to be transferred to the surviving spouse’s return (if applicable).

Capital Losses on Estate Assets

Capital losses from investments and real estate can be deducted, including:

  • Stock market losses incurred before the taxpayer’s passing.
  • Real estate depreciation or sale losses if the property sells below market value.
  • Unused capital loss carryovers, which may be applied against income from theyear of death and the previous year.

Note: If the deceased previously claimed capital gains deductions, special regulations apply.

Funeral and Burial Costs (Not Deductible on Income Tax Returns)

Although funeral and burial expenses are not deductible on a personal or estate income tax return, they may be deductible on an estate tax return (Form 706) if the estate is subject to federal estate tax.

Common funeral expenses include:

  • Funeral home services
  • Cremation or burial fees
  • Transportation costs for remains
  • Memorial services

Legal and Executor Fees

Estate administration requires legal and professional services, which may be deductible if paid directly from estate funds. These include:

  • Attorney fees for probate and estate planning
  • Accountant fees for tax filings
  • Executor fees (if reasonable and in accordance with Texas probate laws)
  • Professional appraisals of real estate, businesses, or valuable assets

Charitable Donations Made by the Estate

If the estate makes charitable donations as part of its administration, these contributions may qualify for tax deductions under IRS regulations.

  • Keep detailed records of all estate expenses.
  • Ensure deductible expenses are paid by the estate, not individual heirs.
  • Consult a probate attorney or tax professionalto maximize deductions.
  • File the deceased’s final tax return and, if applicable, an estate tax return to claim deductions.

Need Help Managing Estate Finances?

Understanding estate tax deductions can be complex. If you need assistance with estate administration, tax filings, or probate matters, we can help.

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Disclaimer
This website is a general information resource curated from publicly available online sources. It is designed to help individuals understand the probate process in Texas and prepare for discussions with a licensed Texas attorney.
The content provided here does not constitute legal advice and should not be relied upon as a substitute for professional legal counsel. Probate laws are complex and vary based on individual circumstances. If you need legal advice or assistance with a probate matter, we strongly recommend consulting a qualified Texas probate attorney.

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