How to report funds obtained from a state's escheatment (unclaimed funds) account?

Forum|Forum|1 year ago
January 23, 2025
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In 2024 I received a check from New York State for unclaimed funds from my mother's abandoned account which went into a newly created Estate Account. Her original estate was closed many years ago. I have given an equal share to my siblings. The funds are a combination of accrued dividends since her death and the sale of a stock in 2024 when the money distributed to me, acting on behalf of my mother's estate. What is the easiest way to report this income which is about $1000 to each sibling? For simplicity can I just report my share on my personal tax return with my siblings doing the same? I know the cost basis for the stock.

Best answer by PatriciaV

Since the unclaimed funds were deposited to a bank account under the estate's tax id number, you may need to file Form 1041 for the year (using TurboTax Business). The cutoff is $600 - any amount over that requires an estate tax return.

A separate estate return would also avoid issues if the state sends Form 1099 for the payment. Each heir receives Schedule K-1 from the estate return that should match the funds that were paid to them.

If the funds were deposited into an account under your name and/or tax id number, then you could follow my previous instructions. Pardon any confusion.

Read more here: IRS File an estate tax income tax return

PatriciaV

Employee

Yes, if the estate is closed and the unclaimed funds check is the only transaction in question, the heirs may report the allocated income on their individual tax returns. If the final estate return has been filed, there is no need to file another Form 1041.

Note that the income should be reported according to the source transactions that generated the income. Inheritances are generally non-taxable. But in this case, no taxes have been paid on the income by the estate. So, the tax liability flows to the heirs.

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AmosAuthor

PartriciaV - Just a follow up on your helpful answer. Since I had to create a new Estate account with its own tax ID number, into which the proceeds from NY's unclaimed funds account were deposited, how will the IRS and my own state tax department know that the tax due is being paid through my (and my siblings) personal account? I did not see any place in Turbotax to make a note that the dividends and capital gains are from a tax ID number different from my own, since there is no tax form being filed for the estate. I am guessing that if the estate gets a letter from the IRS I can just send them an explanation. Can you advise? Thanks very much.

Amos

PatriciaVAnswer

Employee

If the funds were deposited into an account under your name and/or tax id number, then you could follow my previous instructions. Pardon any confusion.

Read more here: IRS File an estate tax income tax return

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TomK2023

It depends. The return of the principal for unclaimed property is generally a return of your money, and is therefore not taxable. However, any interest earned is subject to taxation.

As an Illinois nonresident, "you must file Form IL-1040 and Schedule NR if

you earned enough taxable income from Illinois sources to have a tax liability ( i.e., your Illinois base income from Schedule NR, Step 5, Line 46, is greater than your Illinois exemption allowance on Schedule NR, Step 5, Line 50).

Illinois Department of Revenue - Filing Requirements

"In accordance with the United States Internal Revenue Code, Section 6041, interest earned in excess of $10.00 must be reported to the Internal Revenue Service using form 1099-INT. Because the unclaimed property paid to you by the Illinois State Treasurer’s Office earned $10.00 or more in interest, we are required by law to issue you a 1099-INT."

Illinois State Treasurer - Unclaimed Property

@Amos

@Jone465

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