When a loved one passes away, financial and tax matters are not always the first thing on your mind. However, understanding how to handle the final tax return of a deceased person, particularly when it involves medical expenses, can offer some relief in the form of tax deductions. This blog will walk you through the rules and best practices for deducting medical expenses for a deceased taxpayer, including who can claim them, when they must be paid, and how to properly report them.
What Are Deductible Medical Expenses?
Medical expenses include the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, as well as any payments for treatments affecting any part or function of the body. These may include doctor fees, hospital services, prescription medications, medical equipment, nursing services, and even transportation to medical facilities.
For tax purposes, deductible medical expenses must be unreimbursed. If insurance or another source covers the cost, it cannot be deducted on a tax return. The expenses must also meet the threshold requirement for itemization under Schedule A of IRS Form 1040, which is currently 7.5% of the taxpayer’s adjusted gross income (AGI).
Can Medical Expenses Be Deducted After the Taxpayer Dies?
Yes, medical expenses can be deducted after a taxpayer’s death, but there are strict guidelines. The IRS allows these expenses to be deducted on the decedent’s final income tax return if they were paid either before death or by the estate within one year after death. This rule ensures that the deduction is not lost simply because the individual passed away before paying the medical bills.
Key Rule: Timing of Payment Matters
The IRS provides clear guidance that only expenses paid within a specific time frame can be deducted. For the deduction to apply on the deceased taxpayer’s final income tax return:
- The expense must be for medical care provided to the decedent.
- The expense must be paid by the decedent before death, or by the estate within one year after death.
For example, if your father passed away in July 2024 and his estate paid a $5,000 hospital bill in February 2025, that expense can be deducted on his 2024 final tax return (assuming the executor elects to deduct it).
Who Files the Final Tax Return?
The responsibility of filing a deceased taxpayer’s final Form 1040 falls to the executor or personal representative of the estate. If no executor is appointed, the surviving spouse or another individual in possession of the decedent’s property can file the return.
The return is filed on the standard IRS Form 1040, with the word “Deceased” and the date of death written across the top. The medical expense deduction, if claimed, is itemized on Schedule A.
Itemizing Deductions: When It Makes Sense
To claim medical expenses, you must itemize deductions on Schedule A rather than take the standard deduction. This is only beneficial if total itemized deductions—medical, state taxes, mortgage interest, charitable contributions, etc.—exceed the standard deduction amount for the year.
Medical expenses are only deductible to the extent they exceed 7.5% of AGI. If the decedent’s AGI was low in the year of death and they had high medical costs, this could result in a significant deduction and possible refund.
Claiming the Deduction: Election Required
The executor must elect to deduct medical expenses paid by the estate on the final Form 1040. Otherwise, those expenses may be deductible on the estate’s Form 1041 (Income Tax Return for Estates and Trusts). The decision impacts which return gets the tax benefit.
This election is made by attaching a statement to the final Form 1040, declaring that all qualified medical expenses paid by the estate within one year of death will be deducted on the decedent’s final return.
Examples to Illustrate the Rule
Example 1: Medical Bills Paid Before Death
Margaret was ill for several months in 2024 and incurred $25,000 in unreimbursed medical bills. She paid all of it before passing away in December 2024. Her final tax return can include these expenses if they exceed 7.5% of her AGI.
Example 2: Medical Bills Paid by the Estate
John passed away in March 2024. In June 2024, the estate paid $10,000 in hospital bills for care provided to him in January 2024. The executor can elect to deduct those expenses on John’s 2024 final tax return since the bills were paid within one year of his death.
Reporting the Deduction on Schedule A
Medical expenses are reported on Schedule A (Itemized Deductions) attached to Form 1040. Here’s how:
- Enter total qualified medical expenses.
- Subtract 7.5% of the AGI from the total expenses.
- Report the remainder as the deductible amount.
Ensure you retain receipts, statements, and proof of payment, especially when the estate pays the bills after death.
Medical Expenses and Estate Tax Considerations
If the estate is large enough to be subject to estate tax, you must choose whether to deduct medical expenses on the final income tax return or as an estate tax deduction. You cannot claim the same expenses on both returns. The executor should evaluate which choice yields the greater tax benefit.
Documentation Required
To support the deduction, the executor should gather and keep records such as:
- Invoices and statements from healthcare providers
- Proof of payment (canceled checks, bank statements)
- Receipts for prescriptions and equipment
- A copy of the will or probate documentation confirming payment authority
Common Mistakes to Avoid
- Trying to deduct reimbursed expenses
- Claiming expenses paid more than one year after death
- Forgetting to attach the election statement
- Misreporting expenses on the wrong tax return (Form 1040 vs. 1041)
Conclusion: Final Tax Relief in Times of Loss
While the loss of a loved one is a deeply personal experience, handling the financial aftermath with diligence can ease the burden. Deducting medical expenses for a deceased taxpayer is a legitimate and potentially valuable way to reduce tax liability. Executors and surviving family members should be proactive in gathering documentation and making the proper election when filing the final return.
Consulting a qualified tax professional or CPA is strongly recommended to ensure all steps are completed accurately and that the decedent’s estate receives all the deductions and credits it may be entitled to.
