Tax treatment of estate liabilities for income tax purposes
September 13, 2013 | 30,00 EUR | answered by Dipl.-Kfm. Frank-Olaf Illiges
My father-in-law passed away in April 2011. A certificate of inheritance is available. The inheritance essentially consists only of estate liabilities (funeral expenses, additional medical costs, etc.). Therefore, I have applied for the lump sum amount of 10,300€ according to § 10, Abs.5 Nr. 3 ErbstG in our income tax return.
Tax office: "The tax consideration applies only to the determination of inheritance tax, not to the determination of income tax."
So, my wife, as the daughter of the deceased, would have to inherit 410,300€ in order to be able to deduct it.
However, I have read in two commentaries that if the inheritance is so low that it is less than the sum of the estate liabilities, the lump sum amount of 10,300€ can be deducted from the income tax.
What is correct here? Where is this regulated?
Dear inquirer,
Thank you for your inquiry, which I am happy to answer taking into account your commitment and the rules of this platform.
Please note that my explanation is based on the facts presented, and that adding, omitting, changing information, or the ambiguity of the information can alter the tax result.
The lump sum of 10,300 EUR according to § 10 Abs 5 No. 3 Inheritance Tax Act (ErbStG) is only taken into account when determining the estate as the basis for inheritance tax.
However, for income tax purposes, you can claim the amount of burial expenses you paid that exceeds the fair market value of the estate as an extraordinary burden in your income tax return (§ 33 para. 1 Income Tax Act (EStG)). Reimbursements from third parties for the funeral (e.g. funeral benefits) must be credited against your expenses. (BFH judgment of October 19, 1990, III R 93/87, BStBl. 1991 II p. 140; BFH judgment of February 22, 1996, III R 7/94, BStBl. 1996 II p. 413). Costs for entertaining mourners, funeral travel expenses, mourning attire, and an elaborate grave site are not deductible.
The tax authorities accept funeral expenses as an extraordinary burden within the reasonable limit up to a maximum amount of 7,500 EUR (decision of the OFD Berlin of November 27, 2003, DB 2004 p. 517).
Ultimately, only the portion of funeral expenses that exceeds your so-called reasonable burden is tax-deductible as an extraordinary burden (§ 33 para. 1 and para. 3 EStG). Your reasonable burden depends on your marital status, number of children, total amount of income, and can range between 1% and 7% of the total amount of your income.
Kind regards,
Dipl.-Kfm. Frank-Olaf Illiges
Tax consultant
Am Wieksbach 55
33378 Rheda-Wiedenbrück
Phone: 05242/4055666
Fax: 05242/4055677
e-mail: office@illiges-steuerberatung.de
Internet: www.illiges-steuerberatung.de
