Use Schedule J: Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims on tax Form 706, to itemize all funeral expenses and expenses incurred in administering property subject to claims, the property available to pay the decedent’s creditors. Include each separate expense on Schedule J, the name and address of the person/entity to which the expense is payable, and the nature of the expense.
Administrative expenses must be deductible under state law and considered “reasonable and necessary” by the IRS to be deductible on the 706. Deduction is limited to the amount allowable under local law. Additionally, it can’t exceed the combined value of property subject to claims in the gross estate and the amount of expenses paid out of property included in the gross estate but not subject to claims.
Expenses of property not subject to claims should be deducted on Schedule K, not Schedule J.
Deducting funeral expenses
Itemize all funeral expenses on line A, Schedule J. These expenses include all miscellaneous items billed by the funeral home; flowers; a newspaper funeral announcement; a tombstone, monument, mausoleum, or burial plot for the decedent and his or her family (including perpetual care costs); and travel expenses for one person to accompany the body to the place of burial if traveling a distance.
Unless the amount is paid to the surviving spouse, reduce the funeral expense deduction by any amounts you receive from the Social Security Administration or from the Veterans Administration. If your decedent was a veteran and the VA provides a burial marker, you don’t have that expense to deduct.
Deducting administration expenses
On line B of Schedule J, list the administration expenses for your executor commissions, attorney fees, and accountant fees, indicating whether they’re amounts estimated, agreed upon, or paid.
If you don’t have a probate estate, enter the amount of the trustees’ fees of the revocable living trust on line B1. If both executors’ and trustees’ fees are being charged, enter the trustees’ fees as a miscellaneous expense under item B4. If the decedent arranged to pay the executor through a bequest or devise, you can’t deduct the payment.
You may want to complete, sign, and date Form 4421, Declaration of Executor’s Commissions and Attorney’s Fees, reference it on line B1, and attach it to tax Form 706 as an exhibit. This expedites the audit process. Form 4421 contains a statement as to how much of the attorney fees and executor fees are being taken as a deduction on an income tax return.
Some other expenses that you may deduct on Schedule J, include:
Appraisers’ fees
Probate court filing fees
Certified copy charges
Guardian ad litem fees
Brokers’ and auctioneers’ fees (only if the sale was necessary to pay taxes, debts, or expenses of administration, or preserve the estate)
Maintenance expenses of estate property (including insurance)
Investment advisors’ fees
Other miscellaneous expenses related to the estate such as telephone bills, mileage, and postage
Even interest expenses you incur as executor after the decedent’s death are deductible if they’re reasonable, necessary to the administration of the estate, and deductible under local law. If you elect to pay the estate tax in installment under section 6166, you can’t deduct any interest expenses incurred on the installments on Form 706 but you can deduct them on Form 1041.
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