Interest rec’d after death

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  • #7635
    bg6638
    Participant

    In reading thru IRS instructions, they state that any interest a person receives after death, must be deducted and either credited to the Estate or beneficiaries. My question is that if an individual died in the middle of a month, then had POD CD’s cashed out within five days, would the IRS be “picky” enough to demand that interest be credited to the estate? I’ve asked banks, and they said they will NOT issue two 1099-int forms, just figure the interest paid to the best of my ability, because the won’t even print out a statement.

    #7636
    Kaye Thomas
    Moderator

    Technically the IRS wants an allocation here, but as a practical matter, you’ll be fine if you report in accordance with the 1099. IRS has more important things to worry about than where to report a few days’ interest that likely amounts to a trivial sum. I’m assuming we aren’t talking about millions of dollars in CDs, where even a few days’ interest may be enough to make a difference that matters.

    #7639
    bg6638
    Participant

    There was prox $500K in CD’s which interest was credited monthly, quarterly, and semi-annually, depending on the bank. I figured using that criteria, that prox $1,500 in interest was “credited” after the day of the death. I’ll just file a 1099-INT using that “guesstimate”, and hope the IRS has better things to do. But I don’t feel “safe” if I don’t “allocate” at least some of the interest to the Estate.

    #7641
    Kaye Thomas
    Moderator

    Are you sure you didn’t add a zero? If cashed within five days after date of death, assuming an interest rate around 2%, I get something less than $150.

    #7644
    bg6638
    Participant

    At first, I thought I would just need go from the date of the death, and figure just 5 days of interest. But I realized that several CD’s only post interest semi-annually, others post quarterly, and most monthly. That’s why the number isn’t around $200 ~ $225, because I believe the IRS would insist on accounting based on when the interest was actually available, not just accrued. Or maybe I’m reading too much into this???

    #7645
    Kaye Thomas
    Moderator

    Interest earned before the date of death go on the decedent’s return, even if posted and paid later. (There are some special rules for items like savings bonds, but this is the general rule.) Strictly speaking you should ask for a corrected 1099 showing interest accrued to the date of death as earned by the decedent and the rest as earned by the estate. If you don’t get one, you’re supposed to report all the interest on the decedent’s return, but subtract out the amount earned after the date of death as a “nominee distribution,” and report that income on the estate’s return. When I wrote my initial reply, I was thinking the dollar amount would be too small to worry about, but this amount is perhaps enough so you’d want to follow this rule. See page 6 of IRS pub 559.

    #7646
    bg6638
    Participant

    I just reread IRS Pub 559, and this section has the answer which agrees with what you stated:

    Form(s) 1099 reporting interest and dividends
    earned by the decedent before death should be
    received and the amounts included on the de-
    cedent’s final return.

    Key word “earned,” so I only have to figure the interest from the date of the death to when the CD’s were disbursed, issue a 1099-INT to the Estate, and back the nominee interest off Schedule B. I read too much into this, and the answer was in plain sight. Thank you very much for your kind help in pointing me in the right direction!!

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