Can I deduct funeral expenses?

December, 21 2020 by Steve Banner, EA, MBA

Saying our last goodbyes to a loved one is not only stressful in terms of one's emotional resources, but it can also be a significant strain on one's financial well-being. It's no wonder, therefore, that people often ask if funerals are tax-deductible. After all, medical expenses that exceed 7.5% of my late grandmother's adjusted gross income on Form 1040 can be deductible – and surely a funeral is a medical expense too?

Although this line of reasoning may sound logical to many of us, the tax law disagrees and does not allow a deduction for funeral expenses to be taken on the deceased party's final Form 1040. Nor on the Form 1040 of a relative or any other taxpayer who may have contributed towards paying the costs of the final farewell. According to the tax code, the only medical expenses that qualify for a deduction by a taxpayer are those that were used to prevent or treat a medical illness or condition.

But this is not to say that funeral expenses are never deductible. Funeral and burial expenses can be deducted if they were paid out by the estate of the deceased person. This would happen when the executor or other person responsible for settling the deceased party's estate wants to reduce the estate's overall taxable income. In such cases, the deductible expenses may include expenses such as mortuary, cremation, cemetery, tombstone, burial lot, flowers, luncheon, clergy, and so on.

However, most estates never actually use this deduction since the value of most estates is less than the amount that is subject to tax. But for estates valued above $11.4 million in 2019 or $11.58 million in 2020, deducting funeral expenses on the estate's Form 706 tax return would result in a tax saving.

In other words, our own funeral expenses are not deductible on Form 1040, but if we work hard enough (or hit the lottery), they may be deductible for our estate on Form 706!