Tax Implications for Taxpayers Who Have Lost a Spouse

One of the most challenging periods in life can be the loss of a spouse. If you are grieving a spouse, we express our sincere condolences and are 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 items to keep in mind when you file as a widow/widower.

Filing status

To maximize tax benefits and minimize your liability, it is important to choose the best filing status available to you. Filing status determines your filing requirements, tax rate, and your standard deduction. You can file a joint tax return with your spouse in the year of death, as long as you do not get remarried the same year. Typically, the married filing joint status will give you the biggest tax benefit. 

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 surviving spouse for 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 $29,200 standard deduction for married filing jointly instead (MFJ) of $14,600 for taxpayers filing as single in 2024 ($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.” This means that when you sell that property, instead of using the original cost as the cost basis, you 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. 

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). This concept also applies to any other assets owned, such as real estate, stock and/or mutual funds. 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 as well. This will reduce your taxable income because you will get to take more of a depreciation expense until the rental property is fully depreciated or 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.  Whichever age you choose to start collecting, don’t forget that Social Security doesn’t usually deposit the full amount of those benefits into your bank account. Monthly benefits are reduced by the cost of Medicare premiums.