401(k) loan & Death

[Jill Graff]

Taxpayer had a loan on his 401(k) and died in 2006. He received a 1099-MISC for the loan ($45,000), which I was expecting, but should this go on his 1040 or 1041?

There is no money in the estate to pay the taxes. The 1099-MISC is made out to him, with his SSN. The code in Box 7 is 4 (death). There is a better chance of paying the tax if it can be shown on his final 1040.

Any help is appreciated. Thanks in advance.

[crackenberg]

my best guess

i think it should go on the 1041. death was the triggering event, hence that makes it income to the estate. just because the administrator sent a 1099r to the decedent does not make it 1040 income. this is just my gut talking. i have no reference to point you towards.

[lbbwest]

401(k) Loan

The loan is what triggered the 1099R as the taxpayer signed knowing that if for any reason the payments weren't made including death If applicable 10% penalty and tax associated go to 1040. Taxpayer spent the money, not his estate.

[crackenberg]

i don't think it matters who spent the money or who received the benefit. death is the triggering event. decedent's estate has ird (income in respect of a decedent). cancellation of debt income happens lots after someone dies. this is just like that. like i said, this is my best guess, i have no authority other than my gut feeling.

[George Boutwell]

Estate Liable

I think you mean 1099R, not 1099MISC.

This is income to the estate. If the estate is insolvent, then the tax remains unpaid.

Was the decedent married? The worst thing you could do is put the income on a joint return and force the widow to pay tax on it.

[lbbwest]

Big Urban Myth

"Was the decedent married? The worst thing you could do is put the income on a joint return and force the widow to pay tax on it."

If he was married, and he had any assets. The widow can NOT disregard the tax liability and avail herself of his assets.(Whether this issue is reported on a 1041 or a 1040.) It's no different than if she inherited a piece of property subject to a mortgage, his death doesn't nullify the debt. If he didn't have any assets, that's a horse of a different color.