18 Feb We are settling an estate. What tax returns do we have to file?

Q. My 91-year-old mother-in-law died on Dec. 13, 2020. There was no will so we are currently working our way through the probate process. Her income was less than $20,000 a year from Social Security and we can’t find any tax returns she filed. Was she required to file? Her entire estate is valued at less than $20,000, including a mobile home worth about $12,000. We plan to sell this. Would the estate need to report income tax?
— Beneficiary

A. Please accept our condolences on your family’s loss.

There are several issues to consider.

First, on your mother-in-law’s Social Security income for 2020, there should not be any income tax filing requirement provided she did not have any other reportable income during that year, said Jason Marx, chair of the Tax & Estate Planning and Elder Law & Special Needs Planning groups at Curcio Mirzaian Sirot in Roseland.

For an individual taxpayer with income below $34,000, that taxpayer must recognize up to 50% of the Social Security income, he said.

“Because your mother-in-law’s Social Security income was only $20,000, she would have to recognize $10,000 of income,” Marx said. “However, that amount of taxable income is below the individual federal standard deduction of $12,000.”

So that means there would be no requirement to file a federal income tax return for her, and Social Security income is not taxable in New Jersey and so no New Jersey income tax return would have to be filed, Marx said.

But, income on capital gains recognized on the sale of your mother-in-law’s mobile home must be reported on federal and state income tax returns, he said.

“The basis of the mobile home would be adjusted to the value of that property as of your mother-in-law’s date of death, provided she was the sole owner of that asset,” Marx said. “If the mobile home is sold for an amount greater than its adjusted basis, then gain would have to be recognized and reported on that excess amount.”

But if the mobile home is sold for an amount equal to its date of death value, then there would be no gain to recognize, he said.

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This story was originally published on Feb. 18, 2021.

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