Are decedent's Fed. and Mass. Income tax refunds received after they died taxable, and how?

Question

Together decedent's Federal and Massachusetts income tax refunds received after their death total $1587.00, plus $25.00 in federal interest on the late refund. Is the Personal Representative, required to report the refund amounts as income on Federal Form 1041, income taxes for the estate? and are they also taxable in Massachusetts? Decedent died in 2024, the refunds received in 2024 were for 2023 personal income tax refunds. The only other income for the estate in 2024 was a $21.00 refund of a life insurance premium, and $40.00 for inventory items sold. Is the sale of items in the estate's inventory also reportable as income?  FYI all monies received have been moved into the estate bank account. Thank you.

James L. Arrasmith · Answer

Yes, as the Personal Representative, you need to report the tax refunds and interest as income on Federal Form 1041 for the estate. The $1,587 in federal and Massachusetts income tax refunds, along with the $25 federal interest, should be included in the estate's income since they relate to the decedent’s previously deducted taxes. 
 
For Massachusetts, the treatment is similar. The state tax refund received by the estate is also considered taxable income and should be reported according to Massachusetts state tax guidelines. Make sure to include all relevant amounts on the appropriate state forms to ensure proper reporting. 
 
Regarding the sale of inventory items, the $40 received is considered income for the estate and should be reported on Form 1041. Even though the amounts are small, it’s important to include all income sources to maintain accurate and compliant estate tax filings. Moving all monies into the estate bank account helps keep finances organized, but proper reporting on tax forms is essential.

Q: Are decedent's Fed. and Mass. Income tax refunds received after they died taxable, and how?