Early repayment penalty is not a liability of the estate

A prepayment penalty for loans of the decedent is, at least in large part, one of the costs of estate administration that is not deductible as an estate liability.

If a loan of the decedent is repaid prematurely after the occurrence of the inheritance, the interest portion from the prepayment penalty is not deductible as an estate liability. In the opinion of the Federal Fiscal Court, prepayment penalties are instead to be treated as non-deductible costs for the administration of the estate. Insofar as the prepayment penalty also contains other elements such as costs or fees in addition to the interest component, the deductibility depends on whether the early termination of the loan was a measure of estate settlement or estate administration.