accrued interest upon death


W

Wallace

taxpayer holds a note, with accrued interest. Upon his death, what happens?

1. is the accrued interest included in his estate tax return?

2. is the accrued, yet unpaid interest, taxable to the cash basis taxpayer
in the year of death?

3. is the accrued interest, once paid, taxable to the heirs in the year(s)
paid?

what else should we be asking??

thanks.
 
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D

D. Stussy

Wallace said:
taxpayer holds a note, with accrued interest. Upon his death, what happens?

1. is the accrued interest included in his estate tax return?
Yes.

2. is the accrued, yet unpaid interest, taxable to the cash basis taxpayer
in the year of death?
Yes, assuming it was taxable to begin with had the decedent received it.
3. is the accrued interest, once paid, taxable to the heirs in the year(s)
paid?
Yes, assuming it was taxable to begin with had the decedent received it.
what else should we be asking??
As it is IRD, you should be asking how much estate tax was it subjected to.
The formula for computation is in IRC Section 691(c).
 
W

Wallace

D. Stussy said:
Yes, assuming it was taxable to begin with had the decedent received it.


Yes, assuming it was taxable to begin with had the decedent received it.


As it is IRD, you should be asking how much estate tax was it subjected
to.
The formula for computation is in IRC Section 691(c).
Thanks for the reply. How can 2 and 3 both be yes? If the decedent pays
income tax on accrued yet unpaid interest at the time of his death, how can
the heirs be subject to income tax on that exact same accrued interest, once
paid to them?

Thanks for the cite re IRD.
 
D

D. Stussy

Wallace said:
Thanks for the reply. How can 2 and 3 both be yes? If the decedent pays
income tax on accrued yet unpaid interest at the time of his death, how can
the heirs be subject to income tax on that exact same accrued interest, once
paid to them?

Thanks for the cite re IRD.
Because it can be paid only once. Taxable amounts paid to the decedent
before he dies are taxed to him, and paid to the heirs after he dies are
taxed to them.
 
S

Seth

Had the decedent received it, it would have been taxable; but since
it's accrued and unpaid, nobody has yet received it.
Because it can be paid only once.
And it was specified that it was not paid to the decedent, yet you
said it was taxable to him.
Taxable amounts paid to the decedent before he dies are taxed to
him, and paid to the heirs after he dies are taxed to them.
That is, for the current set of questions, 3 gets "Yes" and 2 gets
"No".

Seth
 
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W

Wallace

Seth said:
Had the decedent received it, it would have been taxable; but since
it's accrued and unpaid, nobody has yet received it.



And it was specified that it was not paid to the decedent, yet you
said it was taxable to him.


That is, for the current set of questions, 3 gets "Yes" and 2 gets
"No".

Seth
yeah, I got that Seth. Sometimes yes means no, for some folks. Thanks for
clarifying for any others finding this thread in the future.
 
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