Determining if Funeral Expenses Can be Tax Deductible

Even the most humble of funerals can come with hefty price tags. In fact, many people find it difficult to cover the cost of a funeral without experiencing at least a minor financial hardship.

To relieve the financial burden of the remaining family, many people wonder if their relative's funeral expenses are tax deductible. They can determine this information well before filing a tax return by learning when these costs can be deducted on a tax return and when they must be omitted.

Funerals Paid for By Estates

The only time that the IRS will allow a person's funeral expenses to become tax deductible is when the deceased's estate pays for these costs. If the person has money set aside expressly for covering his or her final expenses, the estate can deduct these costs from its tax returns.

However, before any tax return if filed, the executor must know when the IRS expects the estate to do so. If the person's estate has a gross value of over $5 million, the executor must by law file a tax return. The gross amount is determined before any expenses, like medical expenses and other qualifying debts, are paid for by the deceased's remaining funds.

If the estate does in fact have a gross value of $5 million or more, the executor can go ahead and file a tax return. To ease the tax burden of the estate, the IRS will allow these related funeral expenses to be deducted:

• Casket
• Vault
• Cremation
• Transportation to and from the funeral home or cemetery
• Church and minister fees
• Food served at the funeral reception

In addition to these deductions, the executor can also claim medical expenses on the tax return to lower the tax burden on the estate. This person cannot claim deductions for relative's hotel costs, clothing expenses, or other costs that did not stem directly from the passing and burial of the estate's owner.

Likewise, the executor cannot claim funeral costs that were paid for by sources other than the estate itself. If the deceased's services were paid for by the Veteran's Administration, for example, the deduction would be lost, as the estate itself did not pay for the funeral.

However, if the outside source of funding only covered part of the funeral's costs, the executor can deduct the expenses that went above what the outside source of funding covered. This person cannot claim the total cost of the funeral, however.

Claiming Funeral Expenses on a Return

Along with filing the normal 1040 tax form, the executor must also file an IRS form 706 to claim the costs of the funeral as exemptions. This person must also file a Schedule J and attach it to the form 706.

To have the funeral expenses deducted from the estate's tax obligation, the return must be filed within nine months of the estate owner's passing. Along with estates valued at over $5 million, estates that have generated income totaling over $600 must also file a tax return within nine months' time.

Individual Payment for Funerals

Relatives or friends who pay for a person's funeral cannot claim these expenses on their tax returns. Despite the money as they may have spent, they are not eligible to recoup any of it through a tax refund.

As such, many people choose to have their funeral expenses taken out of their estates so their survivors' financial burden will be eased. As long as the estate covers the costs of the services, the expenses may be claimed on its tax return.

Funerals can be an expensive obligation for families. Before they claim these expenses on their tax returns, survivors should learn under what circumstances they can legally do so.