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Amend 2009 Tax Return Online

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Amend 2009 Tax Return Online

Amend 2009 tax return online 13. Amend 2009 tax return online   Basis of Property Table of Contents Introduction Useful Items - You may want to see: Cost BasisReal Property Adjusted BasisIncreases to Basis Decreases to Basis Basis Other Than CostProperty Received for Services Taxable Exchanges Involuntary Conversions Nontaxable Exchanges Property Transferred From a Spouse Property Received as a Gift Inherited Property Property Changed From Personal to Business or Rental Use Stocks and Bonds Introduction This chapter discusses how to figure your basis in property. Amend 2009 tax return online It is divided into the following sections. Amend 2009 tax return online Cost basis. Amend 2009 tax return online Adjusted basis. Amend 2009 tax return online Basis other than cost. Amend 2009 tax return online Your basis is the amount of your investment in property for tax purposes. Amend 2009 tax return online Use the basis to figure gain or loss on the sale, exchange, or other disposition of property. Amend 2009 tax return online Also use it to figure deductions for depreciation, amortization, depletion, and casualty losses. Amend 2009 tax return online If you use property for both business or investment purposes and for personal purposes, you must allocate the basis based on the use. Amend 2009 tax return online Only the basis allocated to the business or investment use of the property can be depreciated. Amend 2009 tax return online Your original basis in property is adjusted (increased or decreased) by certain events. Amend 2009 tax return online For example, if you make improvements to the property, increase your basis. Amend 2009 tax return online If you take deductions for depreciation or casualty losses, or claim certain credits, reduce your basis. Amend 2009 tax return online Keep accurate records of all items that affect the basis of your property. Amend 2009 tax return online For more information on keeping records, see chapter 1. Amend 2009 tax return online Useful Items - You may want to see: Publication 15-B Employer's Tax Guide to Fringe Benefits 525 Taxable and Nontaxable Income 535 Business Expenses 537 Installment Sales 544 Sales and Other Dispositions of Assets 550 Investment Income and Expenses 551 Basis of Assets 946 How To Depreciate Property Cost Basis The basis of property you buy is usually its cost. Amend 2009 tax return online The cost is the amount you pay in cash, debt obligations, other property, or services. Amend 2009 tax return online Your cost also includes amounts you pay for the following items: Sales tax, Freight, Installation and testing, Excise taxes, Legal and accounting fees (when they must be capitalized), Revenue stamps, Recording fees, and Real estate taxes (if you assume liability for the seller). Amend 2009 tax return online In addition, the basis of real estate and business assets may include other items. Amend 2009 tax return online Loans with low or no interest. Amend 2009 tax return online    If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price minus any amount considered to be unstated interest. Amend 2009 tax return online You generally have unstated interest if your interest rate is less than the applicable federal rate. Amend 2009 tax return online   For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537. Amend 2009 tax return online Real Property Real property, also called real estate, is land and generally anything built on, growing on, or attached to land. Amend 2009 tax return online If you buy real property, certain fees and other expenses you pay are part of your cost basis in the property. Amend 2009 tax return online Lump sum purchase. Amend 2009 tax return online   If you buy buildings and the land on which they stand for a lump sum, allocate the cost basis among the land and the buildings. Amend 2009 tax return online Allocate the cost basis according to the respective fair market values (FMVs) of the land and buildings at the time of purchase. Amend 2009 tax return online Figure the basis of each asset by multiplying the lump sum by a fraction. Amend 2009 tax return online The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase. Amend 2009 tax return online    If you are not certain of the FMVs of the land and buildings, you can allocate the basis according to their assessed values for real estate tax purposes. Amend 2009 tax return online Fair market value (FMV). Amend 2009 tax return online   FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Amend 2009 tax return online Sales of similar property on or about the same date may be helpful in figuring the FMV of the property. Amend 2009 tax return online Assumption of mortgage. Amend 2009 tax return online   If you buy property and assume (or buy the property subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Amend 2009 tax return online Settlement costs. Amend 2009 tax return online   Your basis includes the settlement fees and closing costs you paid for buying the property. Amend 2009 tax return online (A fee for buying property is a cost that must be paid even if you buy the property for cash. Amend 2009 tax return online ) Do not include fees and costs for getting a loan on the property in your basis. Amend 2009 tax return online   The following are some of the settlement fees or closing costs you can include in the basis of your property. Amend 2009 tax return online Abstract fees (abstract of title fees). Amend 2009 tax return online Charges for installing utility services. Amend 2009 tax return online Legal fees (including fees for the title search and preparation of the sales contract and deed). Amend 2009 tax return online Recording fees. Amend 2009 tax return online Survey fees. Amend 2009 tax return online Transfer taxes. Amend 2009 tax return online Owner's title insurance. Amend 2009 tax return online Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions. Amend 2009 tax return online   Settlement costs do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Amend 2009 tax return online   The following are some of the settlement fees and closing costs you cannot include in the basis of property. Amend 2009 tax return online Casualty insurance premiums. Amend 2009 tax return online Rent for occupancy of the property before closing. Amend 2009 tax return online Charges for utilities or other services related to occupancy of the property before closing. Amend 2009 tax return online Charges connected with getting a loan, such as points (discount points, loan origination fees), mortgage insurance premiums, loan assumption fees, cost of a credit report, and fees for an appraisal required by a lender. Amend 2009 tax return online Fees for refinancing a mortgage. Amend 2009 tax return online Real estate taxes. Amend 2009 tax return online   If you pay real estate taxes the seller owed on real property you bought, and the seller did not reimburse you, treat those taxes as part of your basis. Amend 2009 tax return online You cannot deduct them as an expense. Amend 2009 tax return online    If you reimburse the seller for taxes the seller paid for you, you can usually deduct that amount as an expense in the year of purchase. Amend 2009 tax return online Do not include that amount in the basis of your property. Amend 2009 tax return online If you did not reimburse the seller, you must reduce your basis by the amount of those taxes. Amend 2009 tax return online Points. Amend 2009 tax return online   If you pay points to get a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), do not add the points to the basis of the related property. Amend 2009 tax return online Generally, you deduct the points over the term of the loan. Amend 2009 tax return online For more information on how to deduct points, see chapter 23. Amend 2009 tax return online Points on home mortgage. Amend 2009 tax return online   Special rules may apply to points you and the seller pay when you get a mortgage to buy your main home. Amend 2009 tax return online If certain requirements are met, you can deduct the points in full for the year in which they are paid. Amend 2009 tax return online Reduce the basis of your home by any seller-paid points. Amend 2009 tax return online Adjusted Basis Before figuring gain or loss on a sale, exchange, or other disposition of property or figuring allowable depreciation, depletion, or amortization, you must usually make certain adjustments (increases and decreases) to the cost basis or basis other than cost (discussed later) of the property. Amend 2009 tax return online The result is the adjusted basis. Amend 2009 tax return online Increases to Basis Increase the basis of any property by all items properly added to a capital account. Amend 2009 tax return online Examples of items that increase basis are shown in Table 13-1. Amend 2009 tax return online These include the items discussed below. Amend 2009 tax return online Improvements. Amend 2009 tax return online   Add to your basis in property the cost of improvements having a useful life of more than 1 year, that increase the value of the property, lengthen its life, or adapt it to a different use. Amend 2009 tax return online For example, improvements include putting a recreation room in your unfinished basement, adding another bathroom or bedroom, putting up a fence, putting in new plumbing or wiring, installing a new roof, or paving your driveway. Amend 2009 tax return online Assessments for local improvements. Amend 2009 tax return online   Add to the basis of property assessments for improvements such as streets and sidewalks if they increase the value of the property assessed. Amend 2009 tax return online Do not deduct them as taxes. Amend 2009 tax return online However, you can deduct as taxes assessments for maintenance or repairs, or for meeting interest charges related to the improvements. Amend 2009 tax return online Example. Amend 2009 tax return online Your city changes the street in front of your store into an enclosed pedestrian mall and assesses you and other affected property owners for the cost of the conversion. Amend 2009 tax return online Add the assessment to your property's basis. Amend 2009 tax return online In this example, the assessment is a depreciable asset. Amend 2009 tax return online Decreases to Basis Decrease the basis of any property by all items that represent a return of capital for the period during which you held the property. Amend 2009 tax return online Examples of items that decrease basis are shown in Table 13-1. Amend 2009 tax return online These include the items discussed below. Amend 2009 tax return online Table 13-1. Amend 2009 tax return online Examples of Adjustments to Basis Increases to Basis Decreases to Basis • Capital improvements: • Exclusion from income of   Putting an addition on your home subsidies for energy conservation   Replacing an entire roof measures   Paving your driveway     Installing central air conditioning • Casualty or theft loss deductions   Rewiring your home and insurance reimbursements       • Assessments for local improvements:     Water connections     Extending utility service lines to the property • Postponed gain from the sale of a home   Sidewalks • Alternative motor vehicle credit  (Form 8910)   Roads       • Alternative fuel vehicle refueling     property credit (Form 8911)           • Residential energy credits (Form 5695)       • Casualty losses: • Depreciation and section 179 deduction   Restoring damaged property     • Nontaxable corporate distributions • Legal fees:     Cost of defending and perfecting a title • Certain canceled debt excluded from   Fees for getting a reduction of an assessment income     • Zoning costs • Easements           • Adoption tax benefits Casualty and theft losses. Amend 2009 tax return online   If you have a casualty or theft loss, decrease the basis in your property by any insurance proceeds or other reimbursement and by any deductible loss not covered by insurance. Amend 2009 tax return online    You must increase your basis in the property by the amount you spend on repairs that restore the property to its pre-casualty condition. Amend 2009 tax return online   For more information on casualty and theft losses, see chapter 25. Amend 2009 tax return online Depreciation and section 179 deduction. Amend 2009 tax return online   Decrease the basis of your qualifying business property by any section 179 deduction you take and the depreciation you deducted, or could have deducted (including any special depreciation allowance), on your tax returns under the method of depreciation you selected. Amend 2009 tax return online   For more information about depreciation and the section 179 deduction, see Publication 946 and the Instructions for Form 4562. Amend 2009 tax return online Example. Amend 2009 tax return online You owned a duplex used as rental property that cost you $40,000, of which $35,000 was allocated to the building and $5,000 to the land. Amend 2009 tax return online You added an improvement to the duplex that cost $10,000. Amend 2009 tax return online In February last year, the duplex was damaged by fire. Amend 2009 tax return online Up to that time, you had been allowed depreciation of $23,000. Amend 2009 tax return online You sold some salvaged material for $1,300 and collected $19,700 from your insurance company. Amend 2009 tax return online You deducted a casualty loss of $1,000 on your income tax return for last year. Amend 2009 tax return online You spent $19,000 of the insurance proceeds for restoration of the duplex, which was completed this year. Amend 2009 tax return online You must use the duplex's adjusted basis after the restoration to determine depreciation for the rest of the property's recovery period. Amend 2009 tax return online Figure the adjusted basis of the duplex as follows: Original cost of duplex $35,000 Addition to duplex 10,000 Total cost of duplex $45,000 Minus: Depreciation 23,000 Adjusted basis before casualty $22,000 Minus: Insurance proceeds $19,700     Deducted casualty loss 1,000     Salvage proceeds 1,300 22,000 Adjusted basis after casualty $-0- Add: Cost of restoring duplex 19,000 Adjusted basis after restoration $19,000 Note. Amend 2009 tax return online Your basis in the land is its original cost of $5,000. Amend 2009 tax return online Easements. Amend 2009 tax return online   The amount you receive for granting an easement is generally considered to be proceeds from the sale of an interest in real property. Amend 2009 tax return online It reduces the basis of the affected part of the property. Amend 2009 tax return online If the amount received is more than the basis of the part of the property affected by the easement, reduce your basis in that part to zero and treat the excess as a recognized gain. Amend 2009 tax return online   If the gain is on a capital asset, see chapter 16 for information about how to report it. Amend 2009 tax return online If the gain is on property used in a trade or business, see Publication 544 for information about how to report it. Amend 2009 tax return online Exclusion of subsidies for energy conservation measures. Amend 2009 tax return online   You can exclude from gross income any subsidy you received from a public utility company for the purchase or installation of an energy conservation measure for a dwelling unit. Amend 2009 tax return online Reduce the basis of the property for which you received the subsidy by the excluded amount. Amend 2009 tax return online For more information about this subsidy, see chapter 12. Amend 2009 tax return online Postponed gain from sale of home. Amend 2009 tax return online    If you postponed gain from the sale of your main home under rules in effect before May 7, 1997, you must reduce the basis of the home you acquired as a replacement by the amount of the postponed gain. Amend 2009 tax return online For more information on the rules for the sale of a home, see chapter 15. Amend 2009 tax return online Basis Other Than Cost There are many times when you cannot use cost as basis. Amend 2009 tax return online In these cases, the fair market value or the adjusted basis of the property can be used. Amend 2009 tax return online Fair market value (FMV) and adjusted basis were discussed earlier. Amend 2009 tax return online Property Received for Services If you receive property for your services, include the FMV of the property in income. Amend 2009 tax return online The amount you include in income becomes your basis. Amend 2009 tax return online If the services were performed for a price agreed on beforehand, it will be accepted as the FMV of the property if there is no evidence to the contrary. Amend 2009 tax return online Restricted property. Amend 2009 tax return online   If you receive property for your services and the property is subject to certain restrictions, your basis in the property is its FMV when it becomes substantially vested. Amend 2009 tax return online However, this rule does not apply if you make an election to include in income the FMV of the property at the time it is transferred to you, less any amount you paid for it. Amend 2009 tax return online Property is substantially vested when it is transferable or when it is not subject to a substantial risk of forfeiture (you do not have a good chance of losing it). Amend 2009 tax return online For more information, see Restricted Property in Publication 525. Amend 2009 tax return online Bargain purchases. Amend 2009 tax return online   A bargain purchase is a purchase of an item for less than its FMV. Amend 2009 tax return online If, as compensation for services, you buy goods or other property at less than FMV, include the difference between the purchase price and the property's FMV in your income. Amend 2009 tax return online Your basis in the property is its FMV (your purchase price plus the amount you include in income). Amend 2009 tax return online   If the difference between your purchase price and the FMV is a qualified employee discount, do not include the difference in income. Amend 2009 tax return online However, your basis in the property is still its FMV. Amend 2009 tax return online See Employee Discounts in Publication 15-B. Amend 2009 tax return online Taxable Exchanges A taxable exchange is one in which the gain is taxable or the loss is deductible. Amend 2009 tax return online A taxable gain or deductible loss also is known as a recognized gain or loss. Amend 2009 tax return online If you receive property in exchange for other property in a taxable exchange, the basis of the property you receive is usually its FMV at the time of the exchange. Amend 2009 tax return online Involuntary Conversions If you receive replacement property as a result of an involuntary conversion, such as a casualty, theft, or condemnation, figure the basis of the replacement property using the basis of the converted property. Amend 2009 tax return online Similar or related property. Amend 2009 tax return online   If you receive replacement property similar or related in service or use to the converted property, the replacement property's basis is the same as the converted property's basis on the date of the conversion, with the following adjustments. Amend 2009 tax return online Decrease the basis by the following. Amend 2009 tax return online Any loss you recognize on the involuntary conversion. Amend 2009 tax return online Any money you receive that you do not spend on similar property. Amend 2009 tax return online Increase the basis by the following. Amend 2009 tax return online Any gain you recognize on the involuntary conversion. Amend 2009 tax return online Any cost of acquiring the replacement property. Amend 2009 tax return online Money or property not similar or related. Amend 2009 tax return online    If you receive money or property not similar or related in service or use to the converted property, and you buy replacement property similar or related in service or use to the converted property, the basis of the replacement property is its cost decreased by the gain not recognized on the conversion. Amend 2009 tax return online Example. Amend 2009 tax return online The state condemned your property. Amend 2009 tax return online The adjusted basis of the property was $26,000 and the state paid you $31,000 for it. Amend 2009 tax return online You realized a gain of $5,000 ($31,000 − $26,000). Amend 2009 tax return online You bought replacement property similar in use to the converted property for $29,000. Amend 2009 tax return online You recognize a gain of $2,000 ($31,000 − $29,000), the unspent part of the payment from the state. Amend 2009 tax return online Your unrecognized gain is $3,000, the difference between the $5,000 realized gain and the $2,000 recognized gain. Amend 2009 tax return online The basis of the replacement property is figured as follows: Cost of replacement property $29,000 Minus: Gain not recognized 3,000 Basis of replacement property $26,000 Allocating the basis. Amend 2009 tax return online   If you buy more than one piece of replacement property, allocate your basis among the properties based on their respective costs. Amend 2009 tax return online Basis for depreciation. Amend 2009 tax return online   Special rules apply in determining and depreciating the basis of MACRS property acquired in an involuntary conversion. Amend 2009 tax return online For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Amend 2009 tax return online Nontaxable Exchanges A nontaxable exchange is an exchange in which you are not taxed on any gain and you cannot deduct any loss. Amend 2009 tax return online If you receive property in a nontaxable exchange, its basis is generally the same as the basis of the property you transferred. Amend 2009 tax return online See Nontaxable Trades in chapter 14. Amend 2009 tax return online Like-Kind Exchanges The exchange of property for the same kind of property is the most common type of nontaxable exchange. Amend 2009 tax return online To qualify as a like-kind exchange, the property traded and the property received must be both of the following. Amend 2009 tax return online Qualifying property. Amend 2009 tax return online Like-kind property. Amend 2009 tax return online The basis of the property you receive is generally the same as the adjusted basis of the property you gave up. Amend 2009 tax return online If you trade property in a like-kind exchange and also pay money, the basis of the property received is the adjusted basis of the property you gave up increased by the money you paid. Amend 2009 tax return online Qualifying property. Amend 2009 tax return online   In a like-kind exchange, you must hold for investment or for productive use in your trade or business both the property you give up and the property you receive. Amend 2009 tax return online Like-kind property. Amend 2009 tax return online   There must be an exchange of like-kind property. Amend 2009 tax return online Like-kind properties are properties of the same nature or character, even if they differ in grade or quality. Amend 2009 tax return online The exchange of real estate for real estate and personal property for similar personal property are exchanges of like-kind property. Amend 2009 tax return online Example. Amend 2009 tax return online You trade in an old truck used in your business with an adjusted basis of $1,700 for a new one costing $6,800. Amend 2009 tax return online The dealer allows you $2,000 on the old truck, and you pay $4,800. Amend 2009 tax return online This is a like-kind exchange. Amend 2009 tax return online The basis of the new truck is $6,500 (the adjusted basis of the old one, $1,700, plus the amount you paid, $4,800). Amend 2009 tax return online If you sell your old truck to a third party for $2,000 instead of trading it in and then buy a new one from the dealer, you have a taxable gain of $300 on the sale (the $2,000 sale price minus the $1,700 adjusted basis). Amend 2009 tax return online The basis of the new truck is the price you pay the dealer. Amend 2009 tax return online Partially nontaxable exchanges. Amend 2009 tax return online   A partially nontaxable exchange is an exchange in which you receive unlike property or money in addition to like-kind property. Amend 2009 tax return online The basis of the property you receive is the same as the adjusted basis of the property you gave up, with the following adjustments. Amend 2009 tax return online Decrease the basis by the following amounts. Amend 2009 tax return online Any money you receive. Amend 2009 tax return online Any loss you recognize on the exchange. Amend 2009 tax return online Increase the basis by the following amounts. Amend 2009 tax return online Any additional costs you incur. Amend 2009 tax return online Any gain you recognize on the exchange. Amend 2009 tax return online If the other party to the exchange assumes your liabilities, treat the debt assumption as money you received in the exchange. Amend 2009 tax return online Allocation of basis. Amend 2009 tax return online   If you receive like-kind and unlike properties in the exchange, allocate the basis first to the unlike property, other than money, up to its FMV on the date of the exchange. Amend 2009 tax return online The rest is the basis of the like-kind property. Amend 2009 tax return online More information. Amend 2009 tax return online   See Like-Kind Exchanges in chapter 1 of Publication 544 for more information. Amend 2009 tax return online Basis for depreciation. Amend 2009 tax return online   Special rules apply in determining and depreciating the basis of MACRS property acquired in a like-kind exchange. Amend 2009 tax return online For information, see What Is the Basis of Your Depreciable Property? in chapter 1 of Publication 946. Amend 2009 tax return online Property Transferred From a Spouse The basis of property transferred to you or transferred in trust for your benefit by your spouse is the same as your spouse's adjusted basis. Amend 2009 tax return online The same rule applies to a transfer by your former spouse that is incident to divorce. Amend 2009 tax return online However, for property transferred in trust, adjust your basis for any gain recognized by your spouse or former spouse if the liabilities assumed, plus the liabilities to which the property is subject, are more than the adjusted basis of the property transferred. Amend 2009 tax return online If the property transferred to you is a series E, series EE, or series I U. Amend 2009 tax return online S. Amend 2009 tax return online savings bond, the transferor must include in income the interest accrued to the date of transfer. Amend 2009 tax return online Your basis in the bond immediately after the transfer is equal to the transferor's basis increased by the interest income includible in the transferor's income. Amend 2009 tax return online For more information on these bonds, see chapter 7. Amend 2009 tax return online At the time of the transfer, the transferor must give you the records needed to determine the adjusted basis and holding period of the property as of the date of the transfer. Amend 2009 tax return online For more information about the transfer of property from a spouse, see chapter 14. Amend 2009 tax return online Property Received as a Gift To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. Amend 2009 tax return online FMV less than donor's adjusted basis. Amend 2009 tax return online   If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Amend 2009 tax return online Your basis for figuring gain is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you held the property. Amend 2009 tax return online Your basis for figuring loss is its FMV when you received the gift plus or minus any required adjustments to basis while you held the property. Amend 2009 tax return online See Adjusted Basis , earlier. Amend 2009 tax return online Example. Amend 2009 tax return online You received an acre of land as a gift. Amend 2009 tax return online At the time of the gift, the land had an FMV of $8,000. Amend 2009 tax return online The donor's adjusted basis was $10,000. Amend 2009 tax return online After you received the property, no events occurred to increase or decrease your basis. Amend 2009 tax return online If you later sell the property for $12,000, you will have a $2,000 gain because you must use the donor's adjusted basis at the time of the gift ($10,000) as your basis to figure gain. Amend 2009 tax return online If you sell the property for $7,000, you will have a $1,000 loss because you must use the FMV at the time of the gift ($8,000) as your basis to figure loss. Amend 2009 tax return online If the sales price is between $8,000 and $10,000, you have neither gain nor loss. Amend 2009 tax return online Business property. Amend 2009 tax return online   If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deductions is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. Amend 2009 tax return online FMV equal to or greater than donor's adjusted basis. Amend 2009 tax return online   If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Amend 2009 tax return online Increase your basis by all or part of any gift tax paid, depending on the date of the gift, explained later. Amend 2009 tax return online   Also, for figuring gain or loss from a sale or other disposition or for figuring depreciation, depletion, or amortization deductions on business property, you must increase or decrease your basis (the donor's adjusted basis) by any required adjustments to basis while you held the property. Amend 2009 tax return online See Adjusted Basis , earlier. Amend 2009 tax return online   If you received a gift during the tax year, increase your basis in the gift (the donor's adjusted basis) by the part of the gift tax paid on it due to the net increase in value of the gift. Amend 2009 tax return online Figure the increase by multiplying the gift tax paid by a fraction. Amend 2009 tax return online The numerator of the fraction is the net increase in value of the gift and the denominator is the amount of the gift. Amend 2009 tax return online   The net increase in value of the gift is the FMV of the gift minus the donor's adjusted basis. Amend 2009 tax return online The amount of the gift is its value for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Amend 2009 tax return online Example. Amend 2009 tax return online In 2013, you received a gift of property from your mother that had an FMV of $50,000. Amend 2009 tax return online Her adjusted basis was $20,000. Amend 2009 tax return online The amount of the gift for gift tax purposes was $36,000 ($50,000 minus the $14,000 annual exclusion). Amend 2009 tax return online She paid a gift tax of $7,320 on the property. Amend 2009 tax return online Your basis is $26,076, figured as follows: Fair market value $50,000 Minus: Adjusted basis −20,000 Net increase in value $30,000     Gift tax paid $7,320 Multiplied by ($30,000 ÷ $36,000) × . Amend 2009 tax return online 83 Gift tax due to net increase in value $6,076 Adjusted basis of property to your mother +20,000 Your basis in the property $26,076 Note. Amend 2009 tax return online If you received a gift before 1977, your basis in the gift (the donor's adjusted basis) includes any gift tax paid on it. Amend 2009 tax return online However, your basis cannot exceed the FMV of the gift at the time it was given to you. Amend 2009 tax return online Inherited Property Your basis in property you inherited from a decedent, who died before January 1, 2010, or after December 31, 2010, is generally one of the following: The FMV of the property at the date of the decedent's death. Amend 2009 tax return online The FMV on the alternate valuation date if the personal representative for the estate elects to use alternate valuation. Amend 2009 tax return online The value under the special-use valuation method for real property used in farming or a closely held business if elected for estate tax purposes. Amend 2009 tax return online The decedent's adjusted basis in land to the extent of the value excluded from the decedent's taxable estate as a qualified conservation easement. Amend 2009 tax return online If a federal estate tax return does not have to be filed, your basis in the inherited property is its appraised value at the date of death for state inheritance or transmission taxes. Amend 2009 tax return online For more information, see the instructions to Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Amend 2009 tax return online Property inherited from a decedent who died in 2010. Amend 2009 tax return online   If you inherited property from a decedent who died in 2010, special rules may apply. Amend 2009 tax return online For more information, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Amend 2009 tax return online Community property. Amend 2009 tax return online   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. Amend 2009 tax return online When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. Amend 2009 tax return online For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Amend 2009 tax return online Example. Amend 2009 tax return online You and your spouse owned community property that had a basis of $80,000. Amend 2009 tax return online When your spouse died, half the FMV of the community interest was includible in your spouse's estate. Amend 2009 tax return online The FMV of the community interest was $100,000. Amend 2009 tax return online The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). Amend 2009 tax return online The basis of the other half to your spouse's heirs is also $50,000. Amend 2009 tax return online For more information about community property, see Publication 555, Community Property. Amend 2009 tax return online Property Changed From Personal to Business or Rental Use If you hold property for personal use and then change it to business use or use it to produce rent, you can begin to depreciate the property at the time of the change. Amend 2009 tax return online To do so, you must figure its basis for depreciation at the time of the change. Amend 2009 tax return online An example of changing property held for personal use to business or rental use would be renting out your former personal residence. Amend 2009 tax return online Basis for depreciation. Amend 2009 tax return online   The basis for depreciation is the lesser of the following amounts. Amend 2009 tax return online The FMV of the property on the date of the change. Amend 2009 tax return online Your adjusted basis on the date of the change. Amend 2009 tax return online Example. Amend 2009 tax return online Several years ago, you paid $160,000 to have your house built on a lot that cost $25,000. Amend 2009 tax return online You paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house before changing the property to rental use last year. Amend 2009 tax return online Because land is not depreciable, you include only the cost of the house when figuring the basis for depreciation. Amend 2009 tax return online Your adjusted basis in the house when you changed its use was $178,000 ($160,000 + $20,000 − $2,000). Amend 2009 tax return online On the same date, your property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. Amend 2009 tax return online The basis for figuring depreciation on the house is its FMV on the date of the change ($165,000) because it is less than your adjusted basis ($178,000). Amend 2009 tax return online Sale of property. Amend 2009 tax return online   If you later sell or dispose of property changed to business or rental use, the basis you use will depend on whether you are figuring gain or loss. Amend 2009 tax return online Gain. Amend 2009 tax return online   The basis for figuring a gain is your adjusted basis in the property when you sell the property. Amend 2009 tax return online Example. Amend 2009 tax return online Assume the same facts as in the previous example except that you sell the property at a gain after being allowed depreciation deductions of $37,500. Amend 2009 tax return online Your adjusted basis for figuring gain is $165,500 ($178,000 + $25,000 (land) − $37,500). Amend 2009 tax return online Loss. Amend 2009 tax return online   Figure the basis for a loss starting with the smaller of your adjusted basis or the FMV of the property at the time of the change to business or rental use. Amend 2009 tax return online Then make adjustments (increases and decreases) for the period after the change in the property's use, as discussed earlier under Adjusted Basis . Amend 2009 tax return online Example. Amend 2009 tax return online Assume the same facts as in the previous example, except that you sell the property at a loss after being allowed depreciation deductions of $37,500. Amend 2009 tax return online In this case, you would start with the FMV on the date of the change to rental use ($180,000), because it is less than the adjusted basis of $203,000 ($178,000 + $25,000 (land)) on that date. Amend 2009 tax return online Reduce that amount ($180,000) by the depreciation deductions ($37,500). Amend 2009 tax return online The basis for loss is $142,500 ($180,000 − $37,500). Amend 2009 tax return online Stocks and Bonds The basis of stocks or bonds you buy generally is the purchase price plus any costs of purchase, such as commissions and recording or transfer fees. Amend 2009 tax return online If you get stocks or bonds other than by purchase, your basis is usually determined by the FMV or the previous owner's adjusted basis, as discussed earlier. Amend 2009 tax return online You must adjust the basis of stocks for certain events that occur after purchase. Amend 2009 tax return online For example, if you receive additional stock from nontaxable stock dividends or stock splits, reduce your basis for each share of stock by dividing the adjusted basis of the old stock by the number of shares of old and new stock. Amend 2009 tax return online This rule applies only when the additional stock received is identical to the stock held. Amend 2009 tax return online Also reduce your basis when you receive nontaxable distributions. Amend 2009 tax return online They are a return of capital. Amend 2009 tax return online Example. Amend 2009 tax return online In 2011 you bought 100 shares of XYZ stock for $1,000 or $10 a share. Amend 2009 tax return online In 2012 you bought 100 shares of XYZ stock for $1,600 or $16 a share. Amend 2009 tax return online In 2013 XYZ declared a 2-for-1 stock split. Amend 2009 tax return online You now have 200 shares of stock with a basis of $5 a share and 200 shares with a basis of $8 a share. Amend 2009 tax return online Other basis. Amend 2009 tax return online   There are other ways to figure the basis of stocks or bonds depending on how you acquired them. Amend 2009 tax return online For detailed information, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Amend 2009 tax return online Identifying stocks or bonds sold. Amend 2009 tax return online   If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stocks or bonds. Amend 2009 tax return online If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. Amend 2009 tax return online For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550. Amend 2009 tax return online Mutual fund shares. Amend 2009 tax return online   If you sell mutual fund shares you acquired at various times and prices and left on deposit in an account kept by a custodian or agent, you can elect to use an average basis. Amend 2009 tax return online For more information, see Publication 550. Amend 2009 tax return online Bond premium. Amend 2009 tax return online   If you buy a taxable bond at a premium and elect to amortize the premium, reduce the basis of the bond by the amortized premium you deduct each year. Amend 2009 tax return online See Bond Premium Amortization in chapter 3 of Publication 550 for more information. Amend 2009 tax return online Although you cannot deduct the premium on a tax-exempt bond, you must amortize the premium each year and reduce your basis in the bond by the amortized amount. Amend 2009 tax return online Original issue discount (OID) on debt instruments. Amend 2009 tax return online   You must increase your basis in an OID debt instrument by the OID you include in income for that instrument. Amend 2009 tax return online See Original Issue Discount (OID) in chapter 7 and Publication 1212, Guide To Original Issue Discount (OID) Instruments. Amend 2009 tax return online Tax-exempt obligations. Amend 2009 tax return online    OID on tax-exempt obligations is generally not taxable. Amend 2009 tax return online However, when you dispose of a tax-exempt obligation issued after September 3, 1982, and acquired after March 1, 1984, you must accrue OID on the obligation to determine its adjusted basis. Amend 2009 tax return online The accrued OID is added to the basis of the obligation to determine your gain or loss. Amend 2009 tax return online See chapter 4 of Publication 550. Amend 2009 tax return online Prev  Up  Next   Home   More Online Publications
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Amend 2009 tax return online Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Amend 2009 tax return online Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. Amend 2009 tax return online An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. Amend 2009 tax return online In general, an executor and an administrator perform the same duties and have the same responsibilities. Amend 2009 tax return online For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. Amend 2009 tax return online It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. Amend 2009 tax return online Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. Amend 2009 tax return online The personal representative also must perform the following duties. Amend 2009 tax return online Apply for an employer identification number (EIN) for the estate. Amend 2009 tax return online File all tax returns, including income, estate and gift tax returns, when due. Amend 2009 tax return online Pay the tax determined up to the date of discharge from duties. Amend 2009 tax return online Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. Amend 2009 tax return online If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. Amend 2009 tax return online Penalty. Amend 2009 tax return online   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. Amend 2009 tax return online Reliance on an agent (attorney, accountant, etc. Amend 2009 tax return online ) is not reasonable cause for late filing. Amend 2009 tax return online It is the personal representative's duty to file the returns for the decedent and the estate when due. Amend 2009 tax return online Identification number. Amend 2009 tax return online   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. Amend 2009 tax return online You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. Amend 2009 tax return online You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. Amend 2009 tax return online   You can get an EIN by applying online at www. Amend 2009 tax return online irs. Amend 2009 tax return online gov (click on "Apply for an EIN Online" under the Tools heading). Amend 2009 tax return online Generally, if you apply online, you will receive your EIN immediately upon completing the application. Amend 2009 tax return online You can also apply using Form SS-4, Application for Employer Identification Number. Amend 2009 tax return online Generally, if you apply by mail, it takes about 4 weeks to get your EIN. Amend 2009 tax return online See the form instructions for other ways to apply. Amend 2009 tax return online   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. Amend 2009 tax return online After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. Amend 2009 tax return online As the personal representative handling the estate, you must furnish this identification number to the payer. Amend 2009 tax return online For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. Amend 2009 tax return online If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. Amend 2009 tax return online   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). Amend 2009 tax return online Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. Amend 2009 tax return online    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. Amend 2009 tax return online Also do not use it to make estimated tax payments for a tax year after the year of death. Amend 2009 tax return online Penalty. Amend 2009 tax return online   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. Amend 2009 tax return online You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. Amend 2009 tax return online Notice of fiduciary relationship. Amend 2009 tax return online   The term fiduciary means any person acting for another person. Amend 2009 tax return online It applies to persons who have positions of trust on behalf of others. Amend 2009 tax return online A personal representative for a decedent's estate is a fiduciary. Amend 2009 tax return online Form 56. Amend 2009 tax return online   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. Amend 2009 tax return online Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. Amend 2009 tax return online See the Instructions for Form 56 for filing requirements and other information. Amend 2009 tax return online   File Form 56 as soon as all the necessary information (including the EIN) is available. Amend 2009 tax return online It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. Amend 2009 tax return online The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. Amend 2009 tax return online Termination of fiduciary relationship. Amend 2009 tax return online   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. Amend 2009 tax return online See Form 56 and its instructions for more information. Amend 2009 tax return online   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. Amend 2009 tax return online See below for a discussion of these forms. Amend 2009 tax return online Request for prompt assessment (charge) of tax. Amend 2009 tax return online   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. Amend 2009 tax return online However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. Amend 2009 tax return online This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. Amend 2009 tax return online This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. Amend 2009 tax return online This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. Amend 2009 tax return online Form 4810. Amend 2009 tax return online   Form 4810 can be used for making this request. Amend 2009 tax return online It must be filed separately from any other document. Amend 2009 tax return online   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. Amend 2009 tax return online You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. Amend 2009 tax return online This applies even though the returns were filed before the decedent's death. Amend 2009 tax return online Failure to report income. Amend 2009 tax return online   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. Amend 2009 tax return online However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. Amend 2009 tax return online Request for discharge from personal liability for tax. Amend 2009 tax return online   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. Amend 2009 tax return online The request must be made after the returns for those taxes are filed. Amend 2009 tax return online To make the request, file Form 5495. Amend 2009 tax return online For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. Amend 2009 tax return online   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. Amend 2009 tax return online If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. Amend 2009 tax return online If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. Amend 2009 tax return online    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. Amend 2009 tax return online Insolvent estate. Amend 2009 tax return online   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Amend 2009 tax return online Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. Amend 2009 tax return online The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. Amend 2009 tax return online The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Amend 2009 tax return online Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. Amend 2009 tax return online Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. Amend 2009 tax return online If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. Amend 2009 tax return online If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. Amend 2009 tax return online If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. Amend 2009 tax return online Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. Amend 2009 tax return online A surviving spouse, under certain circumstances, may have to file the returns for the decedent. Amend 2009 tax return online See Joint Return, later. Amend 2009 tax return online Return for preceding year. Amend 2009 tax return online   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. Amend 2009 tax return online The return for that year will be a regular return and the personal representative must file it. Amend 2009 tax return online Example. Amend 2009 tax return online Samantha Smith died on March 21, 2013, before filing her 2012 tax return. Amend 2009 tax return online Her personal representative must file her 2012 return by April 15, 2013. Amend 2009 tax return online Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. Amend 2009 tax return online Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Amend 2009 tax return online If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. Amend 2009 tax return online If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. Amend 2009 tax return online Third party designee. Amend 2009 tax return online   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. Amend 2009 tax return online This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. Amend 2009 tax return online It also allows the designee to perform certain actions. Amend 2009 tax return online See the Instructions for Form 1040 for details. Amend 2009 tax return online Signature. Amend 2009 tax return online   If a personal representative has been appointed, that person must sign the return. Amend 2009 tax return online If it is a joint return, the surviving spouse must also sign it. Amend 2009 tax return online If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. Amend 2009 tax return online ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Amend 2009 tax return online ” Paid preparer. Amend 2009 tax return online   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. Amend 2009 tax return online See the Form 1040 instructions for details. Amend 2009 tax return online When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. Amend 2009 tax return online A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. Amend 2009 tax return online However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. Amend 2009 tax return online The tax return must be prepared for the year of death regardless of when during the year death occurred. Amend 2009 tax return online Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. Amend 2009 tax return online A tax return for a decedent can be electronically filed. Amend 2009 tax return online A personal representative may also obtain an income tax filing extension on behalf of a decedent. Amend 2009 tax return online Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Amend 2009 tax return online Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. Amend 2009 tax return online It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. Amend 2009 tax return online In general, filing status depends on whether the decedent was considered single or married at the time of death. Amend 2009 tax return online See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. Amend 2009 tax return online Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. Amend 2009 tax return online Also, the decedent may be entitled to other credits that result in a refund. Amend 2009 tax return online These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. Amend 2009 tax return online Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Amend 2009 tax return online   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. Amend 2009 tax return online   If the personal representative is filing a claim for refund on Form 1040X, Amended U. Amend 2009 tax return online S. Amend 2009 tax return online Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. Amend 2009 tax return online Example. Amend 2009 tax return online Edward Green died before filing his tax return. Amend 2009 tax return online You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. Amend 2009 tax return online You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. Amend 2009 tax return online    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. Amend 2009 tax return online Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. Amend 2009 tax return online A new check will be issued in your name and mailed to you. Amend 2009 tax return online Death certificate. Amend 2009 tax return online   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. Amend 2009 tax return online Instead, keep it for your records and provide it if requested. Amend 2009 tax return online Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. Amend 2009 tax return online S. Amend 2009 tax return online Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. Amend 2009 tax return online See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. Amend 2009 tax return online Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. Amend 2009 tax return online However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. Amend 2009 tax return online This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. Amend 2009 tax return online The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. Amend 2009 tax return online A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. Amend 2009 tax return online The filing status of the decedent in this instance is married filing a separate return. Amend 2009 tax return online For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. Amend 2009 tax return online Personal representative may revoke joint return election. Amend 2009 tax return online   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. Amend 2009 tax return online This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). Amend 2009 tax return online The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. Amend 2009 tax return online Relief from joint liability. Amend 2009 tax return online   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. Amend 2009 tax return online If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. Amend 2009 tax return online For information on requesting this relief, see Publication 971, Innocent Spouse Relief. Amend 2009 tax return online Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. Amend 2009 tax return online The method of accounting regularly used by the decedent before death also determines the income includible on the final return. Amend 2009 tax return online This section explains how some types of income are reported on the final return. Amend 2009 tax return online For more information about accounting methods, see Publication 538, Accounting Periods and Methods. Amend 2009 tax return online Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. Amend 2009 tax return online Constructive receipt of income. Amend 2009 tax return online   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. Amend 2009 tax return online Include the interest income on the final return. Amend 2009 tax return online   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. Amend 2009 tax return online If the corporation customarily mailed its dividend checks, the dividend was includible when received. Amend 2009 tax return online If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. Amend 2009 tax return online Do not include the dividend in the final return. Amend 2009 tax return online Accrual Method Generally, under an accrual method of accounting, income is reported when earned. Amend 2009 tax return online If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. Amend 2009 tax return online Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. Amend 2009 tax return online A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. Amend 2009 tax return online You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. Amend 2009 tax return online For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). Amend 2009 tax return online For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. Amend 2009 tax return online If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. Amend 2009 tax return online See U. Amend 2009 tax return online S. Amend 2009 tax return online savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. Amend 2009 tax return online How to report. Amend 2009 tax return online   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. Amend 2009 tax return online Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. Amend 2009 tax return online Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Amend 2009 tax return online Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. Amend 2009 tax return online   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. Amend 2009 tax return online    Note. Amend 2009 tax return online If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. Amend 2009 tax return online See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. Amend 2009 tax return online Partnership Income The death of a partner closes the partnership's tax year for that partner. Amend 2009 tax return online Generally, it does not close the partnership's tax year for the remaining partners. Amend 2009 tax return online The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. Amend 2009 tax return online To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. Amend 2009 tax return online On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. Amend 2009 tax return online The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Amend 2009 tax return online The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. Amend 2009 tax return online Example. Amend 2009 tax return online Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. Amend 2009 tax return online The partnership uses a tax year ending June 30. Amend 2009 tax return online Mary died August 31, 2013, and her estate established its tax year through August 31. Amend 2009 tax return online The distributive share of partnership items based on the decedent's partnership interest is reported as follows. Amend 2009 tax return online Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). Amend 2009 tax return online Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. Amend 2009 tax return online S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. Amend 2009 tax return online The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). Amend 2009 tax return online The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. Amend 2009 tax return online Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. Amend 2009 tax return online For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. Amend 2009 tax return online For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. Amend 2009 tax return online Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. Amend 2009 tax return online For more information, see Publication 555, Community Property. Amend 2009 tax return online HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. Amend 2009 tax return online If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. Amend 2009 tax return online The estate tax deduction, discussed later, does not apply to this amount. Amend 2009 tax return online If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Amend 2009 tax return online For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. Amend 2009 tax return online Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. Amend 2009 tax return online The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. Amend 2009 tax return online If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. Amend 2009 tax return online The estate tax deduction, discussed later, does not apply to this amount. Amend 2009 tax return online If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. Amend 2009 tax return online The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. Amend 2009 tax return online This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. Amend 2009 tax return online For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. Amend 2009 tax return online Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. Amend 2009 tax return online These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. Amend 2009 tax return online Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. Amend 2009 tax return online For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. Amend 2009 tax return online Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Amend 2009 tax return online Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. Amend 2009 tax return online This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. Amend 2009 tax return online See Medical Expenses, later. Amend 2009 tax return online Exemptions You can claim the decedent's personal exemption on the final income tax return. Amend 2009 tax return online If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. Amend 2009 tax return online Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. Amend 2009 tax return online For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. Amend 2009 tax return online Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. Amend 2009 tax return online This includes expenses for the decedent, as well as for the decedent's spouse and dependents. Amend 2009 tax return online Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. Amend 2009 tax return online In that case medical expenses exceeding 7. Amend 2009 tax return online 5% of AGI may be deducted. Amend 2009 tax return online Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. Amend 2009 tax return online Election for decedent's expenses. Amend 2009 tax return online   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). Amend 2009 tax return online However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. Amend 2009 tax return online   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). Amend 2009 tax return online You can deduct expenses incurred in the year of death on the final income tax return. Amend 2009 tax return online You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. Amend 2009 tax return online   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. Amend 2009 tax return online 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). Amend 2009 tax return online Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. Amend 2009 tax return online Making the election. Amend 2009 tax return online   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. Amend 2009 tax return online The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. Amend 2009 tax return online This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. Amend 2009 tax return online Example. Amend 2009 tax return online Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Amend 2009 tax return online Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. Amend 2009 tax return online Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. Amend 2009 tax return online Richard itemized his deductions when he filed his 2012 income tax return. Amend 2009 tax return online The personal representative of the estate paid the entire $800 liability in August 2013. Amend 2009 tax return online The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. Amend 2009 tax return online 5% limit. Amend 2009 tax return online The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. Amend 2009 tax return online 5% limit. Amend 2009 tax return online The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. Amend 2009 tax return online Medical expenses not paid by estate. Amend 2009 tax return online   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. Amend 2009 tax return online If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. Amend 2009 tax return online Insurance reimbursements. Amend 2009 tax return online   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. Amend 2009 tax return online The reimbursements are also includible in the decedent's gross estate. Amend 2009 tax return online No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. Amend 2009 tax return online These expenses may be deductible for estate tax purposes on Form 706. Amend 2009 tax return online Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. Amend 2009 tax return online A net operating loss on the decedent's final income tax return can be carried back to prior years. Amend 2009 tax return online (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. Amend 2009 tax return online ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. Amend 2009 tax return online At-risk loss limits. Amend 2009 tax return online   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. Amend 2009 tax return online   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. Amend 2009 tax return online An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. Amend 2009 tax return online An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. Amend 2009 tax return online The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. Amend 2009 tax return online For more information, see Publication 925, Passive Activity and At-Risk Rules. Amend 2009 tax return online Passive activity rules. Amend 2009 tax return online   A passive activity is any trade or business activity in which the taxpayer does not materially participate. Amend 2009 tax return online To determine material participation, see Publication 925. Amend 2009 tax return online Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. Amend 2009 tax return online   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. Amend 2009 tax return online Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. Amend 2009 tax return online   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. Amend 2009 tax return online Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. Amend 2009 tax return online The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. Amend 2009 tax return online   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. Amend 2009 tax return online For more information, see Publication 925. Amend 2009 tax return online Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. Amend 2009 tax return online Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. Amend 2009 tax return online Some of these credits are discussed next. Amend 2009 tax return online Earned income credit. Amend 2009 tax return online   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. Amend 2009 tax return online If the allowable credit is more than the tax liability for the year, the excess is refunded. Amend 2009 tax return online   For more information, see Publication 596, Earned Income Credit (EIC). Amend 2009 tax return online Credit for the elderly or the disabled. Amend 2009 tax return online   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. Amend 2009 tax return online The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. Amend 2009 tax return online   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. Amend 2009 tax return online Child tax credit. Amend 2009 tax return online   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. Amend 2009 tax return online You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. Amend 2009 tax return online For more information, see the Instructions for Form 1040. Amend 2009 tax return online Adoption credit. Amend 2009 tax return online   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. Amend 2009 tax return online   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. Amend 2009 tax return online See Form 8839, Qualified Adoption Expenses, and its instructions for more details. Amend 2009 tax return online General business tax credit. Amend 2009 tax return online   The general business credit available to a taxpayer is limited. Amend 2009 tax return online Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. Amend 2009 tax return online Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. Amend 2009 tax return online   After the carryforward period, a deduction may be allowed for any unused business credit. Amend 2009 tax return online If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. Amend 2009 tax return online   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. Amend 2009 tax return online Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. Amend 2009 tax return online Self-employment tax. Amend 2009 tax return online   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. Amend 2009 tax return online 28 or more. Amend 2009 tax return online Alternative minimum tax (AMT). Amend 2009 tax return online   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. Amend 2009 tax return online The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. Amend 2009 tax return online In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. Amend 2009 tax return online Form 6251. Amend 2009 tax return online    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. Amend 2009 tax return online See the form instructions for information on when you must attach Form 6251 to Form 1040. Amend 2009 tax return online Form 8801. Amend 2009 tax return online   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. Amend 2009 tax return online See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. Amend 2009 tax return online Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. Amend 2009 tax return online Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. Amend 2009 tax return online Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. Amend 2009 tax return online For this purpose, a qualified hazardous duty area is treated as a combat zone. Amend 2009 tax return online If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. Amend 2009 tax return online If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. Amend 2009 tax return online Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. Amend 2009 tax return online If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Amend 2009 tax return online Also, if any tax was collected after the date of death, that amount will be credited or refunded. Amend 2009 tax return online The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. Amend 2009 tax return online This is true even if death actually occurred earlier. Amend 2009 tax return online For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. Amend 2009 tax return online Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. Amend 2009 tax return online S. Amend 2009 tax return online employee, and In a military or terrorist action. Amend 2009 tax return online The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. Amend 2009 tax return online Example. Amend 2009 tax return online The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. Amend 2009 tax return online S. Amend 2009 tax return online employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. Amend 2009 tax return online Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. Amend 2009 tax return online Military or terrorist action defined. Amend 2009 tax return online   A military or terrorist action means the following. Amend 2009 tax return online Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. Amend 2009 tax return online Any military action involving the U. Amend 2009 tax return online S. Amend 2009 tax return online Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. Amend 2009 tax return online   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. Amend 2009 tax return online Military action does not include training exercises. Amend 2009 tax return online Any multinational force in which the United States is participating is treated as an ally of the United States. Amend 2009 tax return online Determining if a terrorist activity or military action has occurred. Amend 2009 tax return online   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. Amend 2009 tax return online Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Amend 2009 tax return online Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. Amend 2009 tax return online The April 19, 1995, terrorist attack on the Alfred P. Amend 2009 tax return online Murrah Federal Building (Oklahoma City). Amend 2009 tax return online The September 11, 2001, terrorist attacks. Amend 2009 tax return online The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. Amend 2009 tax return online The Act also exempts from federal income tax the following types of income. Amend 2009 tax return online Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. Amend 2009 tax return online Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. Amend 2009 tax return online Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. Amend 2009 tax return online Payments from the September 11th Victim Compensation Fund 2001. Amend 2009 tax return online The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. Amend 2009 tax return online See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. Amend 2009 tax return online Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. Amend 2009 tax return online The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. Amend 2009 tax return online For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. Amend 2009 tax return online However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). Amend 2009 tax return online For more information on the Act, see Publication 3920. Amend 2009 tax return online Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. Amend 2009 tax return online If any tax is still due, it will be canceled. Amend 2009 tax return online The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. Amend 2009 tax return online If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. Amend 2009 tax return online Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. Amend 2009 tax return online This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. Amend 2009 tax return online Filing a claim. Amend 2009 tax return online   Use the following procedures to file a claim. Amend 2009 tax return online If a U. Amend 2009 tax return online S. Amend 2009 tax return online individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Amend 2009 tax return online Form W-2, Wage and Tax Statement, must accompany all returns. Amend 2009 tax return online If a U. Amend 2009 tax return online S. Amend 2009 tax return online individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. Amend 2009 tax return online You must file a separate Form 1040X for each year in question. Amend 2009 tax return online   You must file these returns and claims at the following address for regular mail (U. Amend 2009 tax return online S. Amend 2009 tax return online Postal Service). Amend 2009 tax return online    Internal Revenue Service 333 W. Amend 2009 tax return online Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. Amend 2009 tax return online On the applicable return, write the same phrase on the line for total tax. Amend 2009 tax return online If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. Amend 2009 tax return online   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. Amend 2009 tax return online On joint returns, make an allocation of the tax as described below under Joint returns. Amend 2009 tax return online If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. Amend 2009 tax return online   You must attach Form 1310 to all returns and claims for refund. Amend 2009 tax return online However, for exceptions to filing Form 1310, see Form 1310. Amend 2009 tax return online Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. Amend 2009 tax return online   You must also attach proof of death that includes a statement that the individual was a U. Amend 2009 tax return online S. Amend 2009 tax return online employee on the date of injury and on the date of death and died as the result of a military or terrorist action. Amend 2009 tax return online For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. Amend 2009 tax return online For other U. Amend 2009 tax return online S. Amend 2009 tax return online civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. Amend 2009 tax return online For other U. Amend 2009 tax return online S. Amend 2009 tax return online civilian employees killed overseas, attach a certification from the Department of State. Amend 2009 tax return online   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Amend 2009 tax return online Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. Amend 2009 tax return online Joint returns. Amend 2009 tax return online   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. Amend 2009 tax return online Determine the decedent's tax liability as follows. Amend 2009 tax return online Figure the income tax for which the decedent would have been liable if a separate return had been filed. Amend 2009 tax return online Figure the income tax for which the spouse would have been liable if a separate return had been filed. Amend 2009 tax return online Multiply the joint tax liability by a fraction. Amend 2009 tax return online The numerator of the fraction is the amount in (1), above. Amend 2009 tax return online The denominator of the fraction is the total of (1) and (2). Amend 2009 tax return online   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. Amend 2009 tax return online Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. Amend 2009 tax return online Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. Amend 2009 tax return online If a personal representative has been appointed, the personal representative must sign the return. Amend 2009 tax return online If it is a joint return, the surviving spouse must also sign it. Amend 2009 tax return online If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. Amend 2009 tax return online If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. Amend 2009 tax return online ” To claim a refund for the decedent, do the following. Amend 2009 tax return online If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. Amend 2009 tax return online If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. Amend 2009 tax return online (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. Amend 2009 tax return online ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). Amend 2009 tax return online If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. Amend 2009 tax return online Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. Amend 2009 tax return online Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. Amend 2009 tax return online Joint return by surviving spouse. Amend 2009 tax return online   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. Amend 2009 tax return online Decedent as your dependent. Amend 2009 tax return online   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. Amend 2009 tax return online   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. Amend 2009 tax return online To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. Amend 2009 tax return online To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. Amend 2009 tax return online Qualifying widows and widowers. Amend 2009 tax return online   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. Amend 2009 tax return online Requirements. Amend 2009 tax return online   Generally, you qualify for this special benefit if you meet all of the following requirements. Amend 2009 tax return online You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. Amend 2009 tax return online You did not remarry before the end of the current tax year. Amend 2009 tax return online You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. Amend 2009 tax return online You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. Amend 2009 tax return online Example. Amend 2009 tax return online William Burns' wife died in 2010. Amend 2009 tax return online William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. Amend 2009 tax return online For 2010, he was entitled to file a joint return for himself and his deceased wife. Amend 2009 tax return online For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. Amend 2009 tax return online For later years, he may qualify to file as a head of household. Amend 2009 tax return online Figuring your tax. Amend 2009 tax return online   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. Amend 2009 tax return online Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. Amend 2009 tax return online   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. Amend 2009 tax return online Joint return filing rules. Amend 2009 tax return online   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. Amend 2009 tax return online See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. Amend 2009 tax return online Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. Amend 2009 tax return online If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. Amend 2009 tax return online This exclusion does not apply to certain income. Amend 2009 tax return online For more information, see Publication 3920. Amend 2009 tax return online How To Report Income in respect of a decedent must be included in the income of one of the following. Amend 2009 tax return online The decedent's estate, if the estate receives it. Amend 2009 tax return online The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. Amend 2009 tax return online Any person to whom the estate properly distributes the right to receive it. Amend 2009 tax return online If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. Amend 2009 tax return online See Estate Tax Deduction, later. Amend 2009 tax return online Example 1. Amend 2009 tax return online Frank Johnson owned and operated an apple orchard. Amend 2009 tax return online He used the cash method of accounting. Amend 2009 tax return online He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. Amend 2009 tax return online The proceeds from the sale are income in respect of a decedent. Amend 2009 tax return online When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. Amend 2009 tax return online When Frank's widow collects the $2,000, she must include that amount in her return. Amend 2009 tax return online It is not reported on the final return of the decedent or on the return of the estate. Amend 2009 tax return online Example 2. Amend 2009 tax return online Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. Amend 2009 tax return online The amount accrued from the sale of the apples would be included on his final return. Amend 2009 tax return online Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. Amend 2009 tax return online Example 3. Amend 2009 tax return online On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. Amend 2009 tax return online His adjusted basis in the tractor was $2,000. Amend 2009 tax return online George died on February 15, before receiving payment. Amend 2009 tax return online The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. Amend 2009 tax return online In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. Amend 2009 tax return online Example 4. Amend 2009 tax return online Cathy O'Neil was entitled to a large salary payment at the date of her death. Amend 2009 tax return online The amount was to be paid in five annual installments. Amend 2009 tax return online The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. Amend 2009 tax return online The payments are income in respect of a decedent. Amend 2009 tax return online None of the payments were includible on Cathy's final return. Amend 2009 tax return online The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. Amend 2009 tax return online Example 5. Amend 2009 tax return online You inherited the right to receive renewal commissions on life insurance sold by your father before his death. Amend 2009 tax return online You inherited the right from your mother, who acquired it by bequest from your father. Amend 2009 tax return online Your mother died before she received all the commissions she had the right to receive, so you received the rest. Amend 2009 tax return online The commissions are income in respect of a decedent. Amend 2009 tax return online None of these commissions were includible in your father's final return. Amend 2009 tax return online The commissions received by your mother were included in her income. Amend 2009 tax return online The commissions you received are not includible in your mother's income, even on her final return. Amend 2009 tax return online You must include them in your income. Amend 2009 tax return online Character of income. Amend 2009 tax return online   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. Amend 2009 tax return online If the income would have been a capital gain to the decedent, it will be a capital gain to you. Amend 2009 tax return online Transfer of right to income. Amend 2009 tax return online   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. Amend 2009 tax return online   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. Amend 2009 tax return online   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. Amend 2009 tax return online See Installment obligations, later. Amend 2009 tax return online Transfer defined. Amend 2009 tax return online   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. Amend 2009 tax return online Installment obligations. Amend 2009 tax return online   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. Amend 2009 tax return online Include in your income the same profit the decedent would have included had death not occurred. Amend 2009 tax return online For more information, see Publication 537, Installment Sales. Amend 2009 tax return online   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. Amend 2009 tax return online Transfer to obligor. Amend 2009 tax return online   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). Amend 2009 tax return online A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. Amend 2009 tax return online An obligation that becomes unenforceable is treated as having been canceled. Amend 2009 tax return online   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. Amend 2009 tax return online The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. Amend 2009 tax return online   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. Amend 2009 tax return online Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. Amend 2009 tax return online Wages. Amend 2009 tax return online   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. Amend 2009 tax return online The income is not reduced by any amounts withheld by the employer. Amend 2009 tax return online If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. Amend 2009 tax return online   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. Amend 2009 tax return online However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. Amend 2009 tax return online These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. Amend 2009 tax return online These wages are not included in box 1 of Form W-2. Amend 2009 tax return online   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe