Tax Implications for Taxpayers Who Have Lost a Spouse

If you are grieving a spouse, we are so deeply sorry for your loss. During such an emotionally difficult time, tax and financial implications are likely the last things on your mind (and understandably so). In an effort to reduce the complications caused by the need to deal with federal and state tax issues following a loved one’s passing, TurboTax has compiled a list of tax implications to keep in mind when you file as a widow/widower.

Filing status: When filing taxes, you can file a joint tax return with your spouse in the year of death and will be able to sign the tax return as the representative.

Tax Breaks: You may have heard about tax breaks for a “qualifying widow(er)”. If you still have a child that meets certain qualifications, you may be able to file as a qualifying widow(er) two years after your spouse’s death, which will give you the same tax breaks as filing jointly. That means that if you can claim the standard deduction, you can claim the larger $25,900 standard deduction for married filing jointly instead (MFJ) of $12,950 for taxpayers filing as single in 2022 ($27,700 MFJ or $13,850 single for 2023), and you will be taxed at the more favorable tax rates. 

If your spouse owned property, the share of that property receives a “stepped-up basis”, which means that when you sell that property, you get a stepped-up basis instead of using the original cost as the cost basis and can use the fair market value at the date of death — this allows you to only owe taxes on the post-death appreciation of the property. This also applies to any assets owned, such as real estate, stock and/or mutual funds. If you and your spouse owned the property as community property, then both halves of the property get the stepped-up basis (not just the half that they owned).

There are special rules that govern if you and your spouse owned rental property. Since it qualifies for a step-up in tax basis to its value at the date of their death, you can use that increased tax basis for depreciation purposes. That means more depreciation currently, which will reduce your taxable income each year until you sell it.  

Social Security: Another area that’s impacted is social security retirement benefits. As a widow/widower, you are now eligible to collect full benefits based on your deceased spouse’s earnings record, if those benefits are greater than the benefits you were collecting on your own. You can collect reduced widow benefits as early as age 60, or wait and collect full benefits at full retirement age.  

However, don’t forget that social security doesn’t usually deposit the full amount of those benefits into your bank account since those monthly benefits are reduced by the cost of Medicare premiums.