Are Probate Fees Tax Deductible? What You Can and Can't Deduct

Probate fees can be tax deductible—but typically only on the estate's tax return, not on the beneficiary's personal return. Administrative expenses like attorney fees, executor compensation, and court costs may reduce the taxable estate on Form 706 (Estate Tax Return) or be deducted on the estate's income tax return (Form 1041). Individual beneficiaries generally cannot deduct these costs on their personal tax returns.

Here's what qualifies for deduction and where to claim it.

The Short Answer: It Depends Who's Deducting

Key point: The estate gets most deductions, not individual beneficiaries.

What Probate Costs Are Deductible?

Deductible on Estate Tax Return (Form 706)

These administrative expenses reduce the taxable estate:

Attorney fees

• Probate attorney fees
• Legal fees for tax advice
• Litigation costs (defending estate)

Executor/administrator fees

• Compensation paid to executor
• Fees for professional fiduciaries
• Reimbursement for executor's out-of-pocket costs

Court and filing costs

• Probate court filing fees
• Publication costs (legal notices)
• Court-ordered bonds

Accounting and tax preparation

• CPA fees for estate tax returns
• Accountant fees for bookkeeping
• Appraisal costs for tax purposes

Other administrative costs

• Safe deposit box fees
• Storage fees for estate property
• Property management during probate
• Necessary travel expenses

Potentially Deductible on Estate Income Tax Return (Form 1041)

The estate is a separate taxpayer during probate. Certain expenses may be deducted on its income tax return:

Deductible on Form 1041:

• Tax preparation fees for the estate return
• Investment management fees (if estate has investments)
• Interest on estate debts
• State and local income taxes

Important rule: The same expense cannot be deducted on both Form 706 and Form 1041. The estate must choose where to claim each deduction.

What Probate Costs Are NOT Deductible?

Not Deductible Anywhere

Personal expenses of beneficiaries

• Your own attorney fees (unless contesting improper administration)
• Your travel to hearings
• Time you spend managing estate matters

Expenses for personal benefit

• Costs of converting inherited property for your own use
• Improvements to inherited property
• Moving inherited items to your home

Capital expenses

• Costs related to selling real estate (added to cost basis instead)
• Improvements to estate property (may affect basis)

Beneficiaries Generally Cannot Deduct

Most beneficiaries cannot deduct probate-related expenses because:

1. The estate pays – Administrative expenses come from the estate, not your pocket
2. No investment connection – For most beneficiaries, inheritance isn't investment income
3. Personal expense rules – IRS treats most personal expenses as non-deductible

Exception: If you're required to pay estate expenses personally (unusual), consult a tax professional about possible deductions.

How Deductions Work in Practice

Example: Estate With Federal Estate Tax Liability

Estate value: $15 million (above federal exemption)

Tax savings: At 40% federal estate tax rate, $150,000 in deductions saves $60,000 in estate tax.

Example: Estate Without Estate Tax Liability

Estate value: $2 million (below federal exemption)

Since no federal estate tax is owed, Form 706 deductions don't provide tax savings. However:

• Some expenses may be deductible on Form 1041 (estate income tax)
• State estate tax deductions may still apply (in states with lower thresholds)

Result: Deductions matter less when no estate tax is owed.

Form 706 vs. Form 1041: Where to Deduct

When to Use Form 706 (Estate Tax Return)

• Estate exceeds federal estate tax exemption ($13.61 million in 2024)
• Estate owes state estate tax (thresholds vary by state)
• You want to reduce estate tax liability

Advantage: Potentially higher tax savings due to high estate tax rates (40% federal).

When to Use Form 1041 (Estate Income Tax Return)

• Estate earns income during probate (interest, dividends, rent)
• No estate tax is owed
• Expenses are more related to managing estate income

Advantage: Deductions reduce income tax on estate earnings.

Choosing Between Them

If an expense could be deducted on either return, consider:

1. Which provides greater tax benefit? (Higher tax rate = bigger savings)
2. Is estate tax owed? (If no, Form 706 deductions have no value)
3. Does the estate have income? (If no, Form 1041 deductions have no value)

Rule: You cannot deduct the same expense twice. File a statement indicating where each deduction was claimed.

State Tax Considerations

States With Estate Tax

If your state has an estate tax with a lower threshold than the federal exemption, deductions may reduce state estate tax even when no federal tax is owed.

States with estate tax (thresholds vary): Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, DC

States With Inheritance Tax

Inheritance tax is paid by beneficiaries, not the estate. Probate fees generally don't reduce inheritance tax since they're estate expenses, not beneficiary expenses.

States with inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania

Maximizing Estate Tax Deductions

Substantiation Requirements

Keep detailed records for all claimed deductions:

• Invoices and receipts – Itemized bills from attorneys, CPAs
• Contracts – Fee agreements with professionals
• Court records – Filing receipts, bond documents
• Cancelled checks – Proof of payment
• Contemporaneous records – Dates and purposes of expenses

What Gets Scrutinized

The IRS pays attention to:

• Large executor fees (must be reasonable)
• Legal fees for beneficiary disputes (may be personal, not administrative)
• Travel expenses (must be necessary for estate administration)
• Costs paid to family members (arm's-length requirement)

Working With Professionals

• Have executor fees approved by the court
• Get itemized bills from all professionals
• Document the necessity of each expense
• Consider tax impact when making spending decisions

Frequently Asked Questions

Can beneficiaries deduct probate attorney fees?

Generally, no. Probate attorney fees are paid by the estate and deducted on the estate's tax return (Form 706 or 1041). Individual beneficiaries typically cannot deduct these on their personal returns.

Are executor fees tax deductible?

Yes—to the estate. Executor fees are deductible as administrative expenses on Form 706 or Form 1041. The executor must report fees received as taxable income on their personal return.

Can I deduct the cost of my own lawyer during probate?

Usually not. If you hired a personal attorney for your own interests (not estate administration), that's a personal expense. Exception: Fees incurred to produce or collect taxable income may sometimes qualify.

Do probate deductions reduce what I inherit?

Indirectly, yes. The estate pays probate costs before distributing to beneficiaries. However, if deductions reduce estate tax, more money may be available for distribution.

What if the estate doesn't owe estate tax?

If no estate tax is owed, Form 706 deductions have no value. Some expenses may still be deductible on Form 1041 if the estate has income. Otherwise, probate costs simply reduce the inheritance—no tax benefit.

Should I itemize expenses or use estimates?

Always itemize. The IRS requires substantiation for estate tax deductions. Estimates or round numbers may be disallowed.

Get Help With Estate Matters

Tax implications of probate can be complex. If you're dealing with an estate and have questions about deductions or need access to your inheritance, help is available.