Are Funeral Expenses Tax-Deductible?
“Nothing can be said to be certain, except death and taxes.” This famous phrase seems particularly relevant when planning a funeral for a loved one. The question of whether funeral expenses are tax-deductible will likely come up, and it makes sense to get a clear understanding of the tax rules before final payment is made.
We recommend that you consult a tax professional or estate attorney to get the most accurate and current information; however, read on to get an answer to this incredibly complicated question.
When To Deduct Funeral Expenses
According to the IRS, funeral and burial expenses are only deductible if paid out by the decedent’s estate. Individuals cannot claim funeral and burial expenses on their individual income tax return.
This means that if you pay the costs of your loved one’s funeral out of your own pocket, you cannot deduct the expenses on your income tax return (IRS Form 1040). Per the IRS “Miscellaneous Deductions” guide (Publication 529), “Burial or funeral expenses, including the cost of a cemetery lot” are listed as nondeductible expenses.
In addition, funeral expenses cannot be deducted on the decedent’s final tax return. Only the decedent’s estate can claim funeral costs as a deduction if the IRS requires the estate to file an estate tax return. However, since the value of many estates falls below what is taxable, this deduction is not commonly used.
If an executor is settling an estate, he or she may claim a deduction for funeral and burial charges if estate funds were used to pay the applicable final expense costs. This means only the estate can pay for funeral charges. So if a family member or other individual pays the funeral costs using their own funds, the decedent’s estate is not allowed to claim the deduction.
Which Funeral Expenses Are Tax Deductible?
Not all funeral costs are tax deductible. Here is a list of the funeral, cremation, and burial expenses that are eligible for deduction:
Funeral Director Service Fees
The basic services provided by the funeral director include filing the death certificate, procuring permits and licenses, arranging the funeral service, and general overhead expenses. These count as deductible costs, as do embalming and body preparation fees.
Charges for transporting the deceased from the place of death to the funeral home or crematory are eligible for deduction. These costs usually cover the fees for a hearse, limousine, and/or other service vehicle used to transport the body.
If there is a visitation, funeral service, or cremation ceremony, expenses related to catering, floral arrangements, clergy fees (and other miscellaneous reception costs to hold the service), these should be deductible.
This includes the actual cremation fee as well as the cost of an urn to store the cremated ashes.
Burial expenses – such as the cost of a casket and the purchase of a cemetery grave plot or a columbarium niche (for cremated ashes) – can be deducted, as well as headstone or grave marker expenses.
Please note: Funeral and burial expenses must be considered reasonable and necessary in order to meet the deduction eligibility guidelines for an estate tax return. Keep this in mind when making funeral arrangements, as the IRS may deny fees and charges that appear to be exaggerated or over the top, leaving you liable for the unreimbursed costs.
What Estate Tax Forms Are Required For Funeral Expenses?
In order to claim the funeral and burial expenses deduction, the decedent’s estate must file an estate tax return (Form 706: United States Estate [and Generation-Skipping Transfer] Tax Return) if the decedent’s gross estate meets the threshold size in the year the person died.
The filing threshold for 2018 is $11,180,000. Smaller estates that don’t meet the threshold limit are not required to file a tax return, which means they can’t apply the funeral expenses deduction.
If the executor of the estate is required to file Form 706, they must itemize all funeral and burial expenses on line A of Schedule J (Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims). However, the estate cannot include any funeral costs for which it received reimbursement.
For example, the current Social Security death benefit of $255 (unless it’s paid to the surviving spouse) cannot be included in the list of itemized deductions since it is a government payment to the estate. The same rule also applies for any Veterans Administration payments.
The executor must include a copy of the death certificate at the time of filing, and should keep all funeral expense receipts and invoices in the event of an IRS audit. Having all the necessary documentation on hand can help prove the authenticity and reasonableness of the costs if the tax authorities question whether the amounts are appropriate.
How You Can Save With Pre-Need Insurance
Planning a funeral in advance is a good way to get your affairs in order and provide peace of mind. Pre-planning your funeral arrangements also helps your loved ones avoid the financial stress of making final expense payments when they are grieving. While the cost of a pre-planned funeral cannot be deducted on your individual income tax return, paying for funeral charges in advance with pre-need insurance can save money in the long run.
What Is Pre-Need Insurance?
A pre-need plan is a type of insurance policy specifically offered by funeral homes to cover the cost of pre-planned funeral, cremation, and burial services. Pre-need insurance allows you to “lock-in” today’s prices for guaranteed funeral services when you die, giving you the opportunity to plan your funeral according to your personal preferences and/or cultural traditions.
The Bottom Line of Funeral Expense Tax Deductions
If you are responsible for paying the final expenses for your loved one’s funeral arrangements, it’s important to understand the tax impact. Here’s what you should keep in mind:
- Individuals cannot deduct funeral expenses on their income tax returns.
- Funeral and burial expenses are only tax-deductible when paid by the decedent’s estate, and the executor of the estate must file an estate tax return and itemize the expenses in order to claim the deduction.
- Not all funeral expenses can be deducted, and some charges may be denied by the IRS (if they are considered unreasonable and unnecessary).
To save on funeral and burial expenses, consider pre-planning your funeral and paying in advance for the services you want. Your local funeral home provider can help guide you towards a funeral plan that’s right for you.
To find funeral homes and compare funeral costs in your area, visit Funeralocity.com today.Back to Knowledge Center