Organizing the funeral of a loved one can be overwhelming. Funerals can cost more than just the mental anguish of saying goodbye to someone you cared about – they can also put a strain on your finances. This is why many people wonder: Are funeral expenses tax-deductible? Tax law doesn’t offer much help, though, when you’re losing a loved one. Most individuals don’t qualify for tax deductions on the funeral expenses of a close relative, although some estates may make them eligible. There are a few exceptions, though, including final medical expenses and costs incurred by the decedent’s estate. This guide will explain when funeral expenses are tax-deductible, which ones qualify, and how to claim them.
Deducting Final Medical Expenses
Medical expenses of the deceased that were paid within one year after death may be deductible. These expenses must exceed 10% of the adjusted gross income (AGI) reported on the final tax return, or 7.5% of the AGI if the decedent was over 65. The estate executor can include this on the last income tax return of the deceased.
Estates That Are Eligible for Tax Deductions on Funeral Expenses
The IRS does not levy taxes on most estates, so only the most prosperous can benefit from tax deductions on their funeral expenses. IRS rules dictate that all estates worth more than $11.58 million in the 2020 tax year are required to pay federal taxes, at which point they can take advantage of tax deductions on the funeral expenses of a loved one.
You will have to calculate the gross value of the estate to determine whether it is eligible for these tax deductions. Simply look at the monetary value of each asset owned by the decedent and add them up to get the total.
A total that comes in less than the required $11.58 million will not face taxes and thus won’t be eligible for deductions on the funeral expenses. It’s also worth noting that states have their own laws regarding estate taxation, even if you do not meet the threshold for federal taxes, so consult with a tax expert to ensure you’re taking advantage of every deduction available to you.
Funeral Expenses That Are Tax-Deductible
Let’s say you are facing the federal estate tax and are therefore eligible for federal tax deductions. The next question should be which of these expenses apply. Here are some of the funeral expenses you can claim deductions for:
Burial Lot
The cost of acquiring a burial lot and any other expenses that arise from taking care of this burial lot.
Funeral Expenses
These might include embalming, purchasing the casket, hiring the hearse, and even purchasing flowers.
Religious Practices
You can deduct any bequests that the decedent gives for the observance of certain religious practices.
Transportation
Any costs incurred when transporting the body of the deceased are eligible, as are the costs incurred by the person who was traveling with the body.
Gravestone
The purchase of a gravestone or a monument that sits at the decedent’s burial lot is an allowable expense.
Meals
Costs incurred in sourcing the funeral meals.
A couple of funeral expenses are not eligible for tax deductions. Any travel expenses incurred by family members of the deceased are not deductible; the IRS views these as the personal expenses of the family members and other people in attendance and therefore doesn’t allow them as deductions. The deceased’s estate must have paid for any costs before they will qualify for tax deductions on funeral expenses. These deductions won’t be available, then, if another family member or organization took care of the expenses. The IRS will also only allow you to get tax deductions if the funeral expenses are regarded as reasonable. What is reasonable tends to vary, depending on the value of the estate.
Claiming Tax Deductions on Funeral Expenses
Schedule A of the IRS Form 1040 is typically where you would itemize tax deductions, but that form is only for individual income. Here’s what you need to know about how to file for deductions on funeral expenses.
- Determine whether the estate reaches the $11.58 million threshold, including any assets of the decedent and any taxable gifts.
- Find Schedule J of IRS Form 706 if the estate reaches the estate tax threshold.
- List all funeral expenses paid by the estate, excluding any paid by other parties.
- This form should also be filed within nine months after your loved one passes away.
Remember that you don’t qualify for any deductions on your income tax return if you were the one who paid for all the burial expenses of a loved one. The administrator of an estate is charged with deducting any burial expenses if the estate is eligible under the relevant state and federal laws. Administrators should remember to keep an itemized list of all funeral expenses incurred. Determining whether you qualify for tax deductions on funeral expenses can get complicated when you have to factor in the value of the deceased’s estate and other requirements. It can be a relief to hand this off to an expert tax attorney when times are difficult.
Get Help From Professional Tax Attorneys
Organizing a funeral for a loved one can take a toll on you. The last thing you may want to do during this difficult period is to deal with taxes. Silver Tax Group can offer the guidance of qualified tax professionals to help you sort out your taxes and get the allowable tax deductions on your funeral expenses. Our skilled team of tax attorneys has been helping clients nationwide get the best possible tax outcome on their tax returns. Contact us today for a quick consultation or to ask questions about tax deductions for funeral expenses.
