Federal Estate Income and Estate Tax Filing — New Mexico Guidance

Short answer: You must file a federal estate income tax return (Form 1041) only if the estate had gross income of $600 or more in a tax year or if the estate has a beneficiary who is a nonresident alien. A separate federal estate tax return (Form 706) is required only when the decedent’s gross estate (plus certain taxable gifts and adjustments) exceeds the federal exclusion amount for the year of death or when the personal representative wants to elect portability. If no income was produced and no filing-triggering circumstances exist, you generally will not need to file a federal estate income return — but you may still need to file other returns (for the decedent or to preserve estate tax options).

Detailed answer — what to check and why

1) Distinguish three different federal filings

• Decedent’s final individual income tax return (Form 1040) — The decedent’s final personal income tax return must be filed for the year of death if the decedent otherwise meets the filing threshold for individuals. See IRS guidance on filing a final return: IRS: Filing your final individual income tax return.
• Estate income tax return (Form 1041) — Required when the estate has gross income of $600 or more in a tax year, or when any beneficiary is a nonresident alien. Even if the estate makes no distributions to beneficiaries, Form 1041 is required if that $600 threshold is met. See general instructions: IRS: About Form 1041 and Instructions for Form 1041.
• Federal estate tax return (Form 706) — Filed to report the decedent’s gross estate and compute any federal estate tax. This is required if the gross estate plus certain adjusted taxable gifts exceeds the federal exclusion in effect for the year of death, or if an executor wants to elect portability (to preserve a deceased spouse’s unused exclusion). See: IRS: About Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) and the IRS estate tax overview: IRS: Estate Tax.

2) When an estate income tax return (Form 1041) is NOT needed

You generally do not need to file Form 1041 for the estate if:

• The estate produced less than $600 of gross income during the estate’s tax year(s),
• No beneficiary of the estate is a nonresident alien, and
• There are no other special circumstances (for example, the estate was treated as a grantor trust under the tax code and income was reported on the grantor’s return).

3) Why “no distributions” is not the only factor

Even if the estate made no distributions to beneficiaries, the estate itself may have earned income — interest from bank accounts, dividends, rental receipts, or capital gains from sold property. Those receipts count as the estate’s gross income. If the estate’s gross income in a tax year is $600 or more, the estate must file Form 1041 and pay any tax due. If the estate distributes income to beneficiaries, that income may instead be passed through and taxed on the beneficiaries’ returns (reported on Schedule K-1), but distributions are a separate test from whether a return is required.

4) Timing, deadlines, and extensions

• Form 1041: generally due by the 15th day of the fourth month after the end of the estate’s tax year (most estates use the calendar year). See the Form 1041 instructions for current deadlines and extension procedures: Instructions for Form 1041.
• Form 706: due 9 months after the date of death. A 6‑month extension is available by timely filing Form 4768. For details, see: Form 706 information.
• Final Form 1040 for the decedent: file by the normal individual filing deadline for the year of death (adjusted for the date of death and filing rules). See: IRS final return guidance.

5) Federal estate tax exclusion and portability (why you might file even with few assets)

The federal estate tax exemption amount changes periodically (indexed for inflation and by statute). If the decedent’s gross estate (plus prior taxable gifts) exceeds the exemption for the year of death, Form 706 must be filed. Separately, a surviving spouse can preserve a deceased spouse’s unused exclusion amount by making a portability election — but that election generally requires timely filing of Form 706 even if no tax is due. For current estate tax rules and the exclusion amount, consult the IRS: IRS: Estate Tax.

6) New Mexico state considerations

New Mexico does not impose a separate state-level estate or inheritance tax. That means you typically will not need to file a New Mexico estate tax return. Still, New Mexico probate rules determine whether the estate must open probate or be administered in probate court; probate affects how assets are titled and managed, which in turn affects federal filing responsibilities. If the estate under administration produces income or sells assets while in probate, the federal return rules above apply.

Helpful hints — practical checklist for executors and personal representatives

• Inventory income sources: check bank accounts, brokerage accounts, rental properties, business income, and sales of assets for any gross income.
• Confirm whether beneficiaries include nonresident aliens — if so, Form 1041 filing is required regardless of the $600 rule.
• Obtain an Employer Identification Number (EIN) for the estate if you will file Form 1041 or manage estate assets. See: Apply for an EIN.
• Consider portability: if the surviving spouse may later need the deceased spouse’s unused exclusion, consider timely filing Form 706 to elect portability even if no tax is due.
• Keep careful records: bank statements, transaction records, closing statements for sales, and documentation of distributions and expenses. These documents support income calculations and deductions on Form 1041 or Form 706.
• File the decedent’s final Form 1040 when required — that is separate from estate returns.
• If you sold estate assets, remember capital gains may be taxable to the estate (or to beneficiaries if distributed). Calculate basis and holding periods carefully.
• When in doubt, consult a tax professional or probate attorney experienced with New Mexico probate and federal estate tax rules. Complex estates (business ownership, large portfolios, or interstate assets) often need specialized advice.

Disclaimer: This article provides general information about federal and New Mexico considerations for estate-related tax filings. It is not legal or tax advice and does not create an attorney-client or taxpayer-preparer relationship. For advice tailored to your situation, consult a qualified tax advisor or probate attorney.