Section 642(g)
Election
The costs of settling an estate can be deducted on the estate tax return or the estate’s income tax return, but only one. Picking the right one, and filing the waiver correctly, can save real money.
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One deduction, two possible returns
Settling an estate costs money: attorney fees, accounting fees, appraisals, the executor’s fee, and costs of selling property. Those expenses can be deducted, but only once. The executor chooses whether to take them on the federal estate tax return (Form 706) or on the estate’s income tax return (Form 1041). Taking them on the income tax return requires a written waiver of the estate tax deduction, which cannot be undone.
Which return usually gets the deduction
| Situation | Usually favors |
|---|---|
| The estate owes federal estate tax | Form 706, where the deduction saves up to 40% |
| No estate tax, and the estate has taxable income | Form 1041, where it saves income tax at trust rates (37% above $16,000 in 2026) |
| Form 706 filed only to elect portability | Compare: on the 706 it can increase the DSUE; on the 1041 it saves income tax now |
| The estate owes state estate tax | Check the state return, which often follows the federal 706 deductions |
| Final year, with deductions exceeding income | Form 1041, where the excess can pass to beneficiaries |
| Expenses the decedent owed at death that would have been income tax deductions (accrued property tax, interest, business or investment expenses) | Both returns: these deductions in respect of a decedent are exempt from the rule. Personal debts, like a credit card balance, count only on the 706 |
Why it matters even when no estate tax is due
The federal estate tax exemption is $15 million per person in 2026, so most families owe no federal estate tax. That usually makes the income tax return the better choice, because the deduction reduces the tax on income the estate earns while it is being settled. A few situations need a closer look:
- Filing a Form 706 only to preserve the unused exemption for a surviving spouse: deducting expenses on the 706 can increase the amount carried over to the spouse, which may matter more later than the income tax saved now.
- A state with its own estate tax: the state return often follows the federal one, so where you take the deduction can change the state tax.
- Not much income: an income tax deduction helps only if there is income to offset. In the estate’s final year, extra deductions can pass through to the beneficiaries.
Expenses can also be split, with some taken on each return. And the waiver does not have to be filed right away, which gives the executor time to see the full picture first.
One exception
Some bills the person who died left unpaid are treated differently: the ones that would have been income tax deductions for them if they had lived to pay them, like property tax or loan interest that built up before death, or expenses of a business they ran. When the estate pays one of those, it can deduct it twice: on the estate tax return, as a debt the person owed, and on the estate’s income tax return.
For example, if the person owed $6,000 of property tax for the months before they died and the estate pays it, the $6,000 reduces the estate on Form 706 and is also deducted on the estate’s Form 1041. Ordinary personal debts are different: a credit card balance counts as a debt on the estate tax return but is never an income tax deduction.
What we handle
- Deciding where each expense does the most good
- Preparing the waiver statement when expenses go on the income tax return
- Keeping track of what was deducted where, so nothing is lost or doubled
- Passing unused deductions to beneficiaries in the final year
Frequently Asked Questions
Can estate expenses be deducted on both the estate tax return and the income tax return?
No. Expenses of settling the estate, like attorney, accounting, appraisal, and executor fees, can be deducted on the federal estate tax return (Form 706) or the estate’s income tax return (Form 1041), but not both. Taking them on the income tax return requires a written waiver of the estate tax deduction.
Which return should the expenses go on?
If the estate owes federal estate tax, the estate tax return usually saves more. Since the 2026 exemption is $15 million, most estates owe none, and the income tax return is usually better. A Form 706 filed only for portability, a state estate tax, or an estate with little income can change the answer.
Can we change our minds later?
The waiver can be filed any time before the statute of limitations on that year’s income tax return runs out, generally three years after the return was filed, so there is time to decide. But once the waiver is filed, it is permanent: those expenses can never be deducted on the estate tax return.
What if the estate does not have enough income to use the deduction?
Expenses can be split between the two returns. And in the estate’s final year, deductions that exceed the estate’s income can pass through to the beneficiaries on their K-1s.