848 / What deductions for expenses, indebtedness and taxes are allowed from the gross estate in arriving at the taxable estate for federal estate tax purposes?
Funeral expenses are generally allowable, although the regulations limit expenditures for a tombstone, monument, mausoleum, or burial lot to a reasonable amount.
Administration expenses include primarily fees or commissions of executors, accountants, and attorneys, and miscellaneous costs incurred in connection with the preservation and settlement of the estate, including determination and contest of death taxes. Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deductions.1 Expenses for selling property of the estate are deductible if the sale is necessary in order to pay the decedent’s debts, expenses of administration, or taxes, to preserve the estate, or to effect distribution.
Planning Point: The estate should document contemporaneously with the sale why the estate needed to sell the property in order to avoid a future challenge.
The phrase “expenses for selling property” includes brokerage fees and other expenses attending the sale, such as the fees of an auctioneer if it is reasonably necessary to employ one.2
IRC Section 642(g) says that amounts allowable under IRC Section 2053 or 2054 as a deduction in computing the taxable estate shall not be allowed as a deduction (or as an offset against the sales price of property in determining gain or loss) in computing the taxable income of the estate unless the executor files a statement that the amounts have not been allowed as deductions under IRC Section 2053 or 2054 and waives the right to claim such deductions in the future. It has been held that where an estate necessarily incurred expenses in selling securities for the purpose of obtaining funds with which to pay estate settlement costs and taxes and used such expenses as offsets against the selling price of the securities in computing estate income taxes, and where the IRS did not require the above-described statement and waiver, the estate was free to claim the selling expenses as an estate tax deduction under IRC Section 2053.3