Are Funeral Expenses Tax-Deductible?
EG
Summary:
Funeral and burial expenses can add up to tens of thousands of dollars. Unfortunately, they aren’t tax-deductible for most people, but they might be for some estates.
Losing a loved one is never easy, and it can be made even more stressful by the financial burden it can place on families. According to the National Funeral Directors Association, the median cost of a funeral in 2021 was $7,848. Some individuals may have money set aside for this expense, but for others, it can come as a big surprise.
Given the large cost of funerals, many families may find themselves asking whether there’s any tax break available for this major expense. And while there technically is a federal tax deduction available, most people won’t be eligible. Keep reading to learn more about when funeral expenses are (and aren’t) tax-deductible and how to claim the deduction if you’re eligible.
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Are funeral expenses tax-deductible for individuals?
Unfortunately, the Internal Revenue Service (IRS) doesn’t allow individuals to deduct funeral expenses on their federal income tax returns. This restriction applies both to loved ones of the deceased who may have paid the funeral costs out of their own pockets, as well as to the deceased individuals themselves. However, there is an exception for estate taxes.
Funeral tax deductions for estates
If you’re filing taxes on behalf of an estate rather than an individual, you can claim a tax deduction for funeral expenses.
There’s a catch, though. Most estates don’t actually pay federal taxes or file tax returns. The IRS allows for an exemption, meaning up to a certain amount of someone’s estate is exempt from estate taxes. That exemption in 2022 is $12.06 million, up from $11.7 million in 2021. Only estates worth more than that amount can take advantage of the tax deduction for funeral costs.
Several states also have their own estate taxes, which vary from $1 million in Oregon and Massachusetts to $9.1 million in Connecticut (as of 2022). If you live in one of those states and need to file a state tax return due to the lower exemption, you may also be able to deduct funeral expenses. However, in terms of federal income tax deductions, you’re pretty limited.
Which expenses are tax-deductible?
Now that we know funeral expenses are tax-deductible for some states, you’re probably wondering what expenses you can deduct.
In general, you can deduct any expenses directly related to the funeral and burial itself (or a memorial service, if you have that instead of a funeral). Some of these expenses may include:
- Embalming or cremation
- Casket or urn
- Funeral home fees
- Funeral services (including the meal)
- Transportation
- A religious leader or celebrant fees
- Bureau plot
- Tombstone
Pro Tip
If you plan to deduct any of these expenses from an estate’s income tax return, be sure to save receipts so you can provide proof of purchase to the IRS.
Which expenses aren’t tax-deductible?
As you can see, many expenses required to plan a funeral are deductible from an estate’s tax return. However, there are some expenses that may come up that you won’t be able to deduct.
For instance, you can’t deduct any personal expenses involved in the funeral. The IRS considers personal expenses to include the cost of travel for family members and other loved ones of the deceased.
It’s important to note that these expenses are only deductible if they’re actually paid by the estate. If a loved one or another organization covers the expenses, they won’t be able to deduct them from their tax returns. This includes funeral costs covered by Veterans Affairs Death Benefits for burial and funeral.
Can you use the deceased’s life insurance money for funeral expenses?
This is a complicated question. In most cases, life insurance policies that list individuals rather than the estate as beneficiaries aren’t considered part of the estate. As a result, if you use those funds to pay for the funeral, you won’t be eligible for the funeral expense deduction.
However, that shouldn’t stop you from getting a policy. While your beneficiaries may not be able to deduct funeral expenses using these funds, a life insurance policy can still provide for your family after you’re gone.
How to claim a tax deduction for funeral expenses
You’ll be able to claim a deduction for funeral expenses when you file a tax return on behalf of the deceased individual’s estate. It’s usually the estate’s executor that files the tax return.
To deduct funeral costs, you’ll have to file IRS Form 706, the United States Estate and Generation-Skipping Transfer Tax Return. Schedule J of this form is dedicated to funeral expenses and other expenses incurred in administering the estate.
When you complete Schedule J, you’ll provide a detailed list of funeral expenses and their amounts, with a total amount added up at the end. You’ll also report whether any of those expenses have been reimbursed or are expected to be reimbursed to the estate. If so, you’ll have to attach an additional statement explaining.
Once you’ve completed Schedule J, you’ll report the total amount of funeral expenses and other claimed expenses on page three of Form 706 (Part 5, Line 14).
Estate tax returns are generally due nine months after the date of death. However, you can request a six-month extension as long as you pay the full tax amount by the original due date.
Pro Tip
Tax returns for high-net-worth estates can become complicated. If you’re the executor for such an estate, it’s probably worth hiring a tax professional to walk you through the process.
FAQs
Are end-of-life expenses deductible?
As we mentioned, funeral expenses aren’t tax-deductible for most individuals. However, end-of-life expenses are tax-deductible if they exceed 7.5% of the person’s adjusted gross income. That being said, qualified medical expenses are limited to those performed in an attempt to treat or prevent a medical condition from worsening.
What is the cost of a funeral?
According to the National Funeral Directors Association, the median cost of a funeral in 2021 was $7,848. The cost is slightly lower for families who choose cremation instead of a traditional viewing and burial.
Can funeral costs be paid from the estate?
Yes, funeral expenses can be paid from the deceased individual’s estate funds. In fact, many people have life insurance or other funds set aside specifically for this purpose to eliminate the financial burden on their family members.
What happens if you have no money for a funeral?
If there aren’t sufficient funds in the estate to pay for funeral costs, then the financial burden will fall on the loved ones. If those individuals can’t afford the costs, there may be other options to reduce the cost of the funeral or raise the funds in other ways.
Key takeaways
- Funeral expenses are generally not tax-deductible unless the deceased’s estate pays for the costs. However, only estates worth over $12.06 million are eligible for these tax deductions.
- More estates may be eligible for state tax deductions, as many states have estate tax exemptions set much lower than the federal government.
- The money from the deceased’s life insurance policy can be used to pay for the funeral. That being said, you cannot receive tax deductions if you finance a funeral this way.
- If you do wish to claim a funeral tax deduction, you’ll have to fill out Schedule J on Form 706.
EG
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.
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