Are headstones tax deductible?

All deductible costs must be paid by the estate itself. Common deductible funeral costs include the casket, embalmment or cremation, burial plot, gravestone, and funeral service arrangements, such as flowers and catering.

thebalancemoney.com - How Much Can You Claim for Funeral Expense Deductions? - The Balance

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Federal and state estate taxes are based on the value of property owned by a decedent at the time of death. Estates aren't liable for these taxes unless and until their net values after deducting certain expenses exceed a threshold called an exemption. The amount of these exemptions can vary. It was $11.7 million in 2021 ($12.06 million in 2022) at the federal level while it's only $1 million in Oregon. Estates try to claim as many deductions as possible to decrease net value and possibly dodge the estate tax, particularly when the estate is close to surpassing the exemption threshold. Funeral expenses are recognized as legitimate estate tax deductions, subject to certain rules. Key Takeaways There is no limit to how many deductions you can claim, but the deductions must be "reasonable and necessary" in the eyes of the IRS.

All deductible costs must be paid by the estate itself.

Common deductible funeral costs include the casket, embalmment or cremation, burial plot, gravestone, and funeral service arrangements, such as flowers and catering. Estates with net values that don't reach exemption thresholds can't deduct funeral expenses, because they're not liable for estate taxes in the first place.

Funeral Costs as Qualifying Expenses

An estate tax deduction is generally allowed for many types of funeral expenses. However, the estate must directly pay these costs. It will lose the deduction when a funeral is paid for by a family member or another benefactor, such as the Veterans Administration.

The following expenses are deductible:

A burial lot and its maintenance

Bequests for masses or other religious observances

Embalmment or cremation

The casket and hearse

Funeral service arrangements (such as flowers and catering)

Transportation of the body and the person accompanying the deceased to the funeral and burial plot Purchasing and erecting a monument, gravestone, or marker on the decedent’s burial lot or final resting place Travel expenses for members of the family to attend the funeral are not deductible as funeral expenses. These are considered to be personal expenses of the family members and attendees, and funeral expenses are not deductible on personal income tax returns. Note Funeral expenses are never deductible for income tax purposes, whether they're paid by an individual or the estate, which might also have to file an income tax return.

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Expenses Must Be "Reasonable and Necessary"

Deductions are allowed only if they're considered reasonable and necessary, and this can depend on the decedent’s station in life and the size of the estate. What's reasonable and necessary for a multi-millionaire would logically be significantly more than what's reasonable for someone whose estate just barely nudges over a $1 million state exemption. The federal estate tax also limits deductions for funeral expenses to the extent that they're allowable under state law. The IRS is only bound by decisions of a state’s highest court, so it's possible to have amounts permitted as funeral expenses by the county Orphan’s Court yet have the deduction denied by the IRS for the federal estate tax.

The Executor's Role

The duty of an estate's executor is primarily one of payment, not one of selection of the burial site or employment of the undertaker. An executor should nonetheless consider advising those arranging the funeral that their right to reimbursement from the estate is limited to what will be considered reasonable. The person making arrangements assumes the risk of personal liability for the excessive costs if the funeral is too elaborate. Special care should also be taken if there's a chance that the estate might be insolvent—the decedent's debts will exceed the value of his assets. The state court might allow only a nominal sum for the funeral in this case.

What About the Decedent's Wishes?

Common law has historically taken the position that a decedent’s remains are not “owned” by the estate. Rather, “ownership” of the body belongs to the next of kin. Extravagant burial directions are generally not honored as a matter of public policy, because such practices could well result in grave robbing. The movie star who wants to be buried in her Ferrari is a good example. Directions for internment in a solid silver or solid gold casket are in the same category. A decedent’s wishes expressed in the will are not necessarily binding, either, although they're given a lot of weight, particularly with regard to disposition of the body. In the event of dispute, the general order of preference recognized in case law is usually:

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The wishes of the surviving spouse if the marriage existed at the time of death The wishes of the decedent, especially if they were strongly and recently expressed The wishes of the next of kin according to their relationship or association with the decedent The court has exclusive jurisdiction of the control of the decedent’s burial in the event that a dispute arises that cannot otherwise be resolved.

How to Take the Deduction

Assuming an estate is large enough to be taxable at the federal level, the executor would be responsible for preparing and filing IRS Form 706, the United States Estate (and Generation Skipping Transfer) tax return. Schedule J of this form is dedicated to funeral expenses. They go on line 1 of Section A of Schedule J. State estate tax returns can vary, so check with a tax professional or estate planning attorney.

Frequently Asked Questions (FAQs)

How much are funeral expenses on average? Funeral costs vary widely, but they can cost $10,000 or more. There are steps you can take to control the cost, such as choosing cremation over burial, since coffins alone typically cost thousands of dollars. The Federal Trade Commission's funeral costs and pricing checklist can help you prepare for the costs. How can you get help with funeral expenses? Different organizations exist to help with funeral expenses in different circumstances. For instance, those who died as a result of the COVID-19 pandemic may qualify for funeral assistance from FEMA. State and local authorities may also have programs to assist low-income families with funeral costs.

thebalancemoney.com - How Much Can You Claim for Funeral Expense Deductions? - The Balance

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