Tax Issues When Losing a Spouse in Maryland: Four Things You Should Know

By: VGFS
Saturday, March 11, 2023

How much do you know about the tax issues when losing a spouse in Maryland?

The loss of a spouse or partner is among the most significant life adjustments. In addition to the deep grief, there are endless decisions to be made and financial matters to attend to. The passing of a spouse also comes with tax and fiscal implications that must be considered.

Here are four things to know about the tax issues when losing a spouse in Maryland.

You won’t have to pay inheritance tax.

There is no federal inheritance tax, but several states have an inheritance tax. Maryland imposes both an inheritance and estate tax. However, surviving spouses are exempt from inheritance taxes due to their relationship to the decedent. Spouses are not required to pay federal estate taxes, regardless of the value of the estate, due to the marital deduction that allows the unlimited transfer of assets. This key deduction allows surviving spouses to delay paying any estate taxes until they also pass on.

Required minimum distribution (RMD) rules for inherited retirement accounts still apply.

If you inherited your deceased spouse’s IRA or other qualified retirement plan account, you must still abide by the RMD rules. The RMD is the amount that must be withdrawn from your investment account(s) each year. In general, withdrawals from IRAS or retirement accounts are required beginning at age 70½.  Roth IRAs, however, do not require withdrawals until after the death of the owner. Pay close attention to your spouse’s age when they passed, as well as your own age, as you may be required to take an RMD this year and pay any additional income taxes that result. Keep in mind that failing to meet the RMD requirements comes with a hefty price tag.  Ignoring the rules could result in owing as much as 50% of that money to Uncle Sam. Avoid these steep penalties by paying close attention to RMDs each year.

You get a basis step-up for inherited taxes.

If you inherited appreciated capital gains assets such as securities or real estate from your spouse, you can increase the federal income tax basis of those assets to reflect their fair market value (FMV) as of the date of death. This means that when you sell an inherited asset that has received a “basis step-up,” you will only owe federal capital gains tax on appreciation that occurred after the date of your spouse’s passing.

You can still file a joint tax return for 2022.

If your spouse passed away in 2022, you are considered single throughout the entire calendar year for federal income tax filing purposes. However, you can still file a final joint Form 1040 with your departed spouse for 2022, allowing you the benefits of tax rules that work in your favor. That final joint return can include your departed spouse’s income, deductions, and credits up until the time of their passing, as well as your own, for all of 2022.

As you adjust to a new normal, it is also important to learn about the tax issues when losing a spouse in Maryland and the rules that may work in your favor. Talk to a financial advisor or tax professional to get accurate information and to determine how becoming a widow or widower may impact your financial future.

The loss of a spouse can cause profound grief as well as several complex tax issues. The professionals at Vaughn Greene Funeral Services are here to offer helpful resources and compassionate care. Please reach out to us anytime.

About Vaughn Greene Funeral Services: For more than 25 years, Vaughn Greene Funeral Services has been providing a ministry of care to Baltimore’s African American community. As a leading local, minority- and family-owned provider, we promise to provide our highest level of service and respect to families who entrust us to honor their loved ones. For more information about our funeral, cremation, memorial, repast, and grief counseling services, please call us at 410.655.0015 or visit us online at https://vaughncgreene.com/.

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