This section’s impact will require preparers of estate or trust final K-1s to identify the amounts and type of deductions passing through to beneficiaries on a final K-1 rather than merely providing a summary number of excess deductions as in the past. TD 9918 provides guidance and allows beneficiaries to deduct excess deductions upon the termination of an estate or trust by providing the following guidance: The advent of TCJA left excess deductions as disallowed since miscellaneous deductions subject to 2% of AGI were eliminated during the TCJA years. In years before TCJA, excess deductions upon the termination of an estate or trust would be picked up by the estate or trust beneficiaries via the final K-1 and typically be treated as miscellaneous itemized deductions subject to 2% of AGI on the beneficiaries Form 1040 Schedule A. These deductible expenses can result in excess deductions for the estate or trust. The issue that arose from the deductible expense area is what happens in the final year of an estate or trust. Deductions for trusts which accumulate income under §661.
Deductions for trusts which distribute current income under §651 and.The personal exemption of an estate or irrevocable trust (§642(b)).Expenses paid or incurred that are connected to the administration of the estate or trust and would not have existed if the property wasn’t held in an estate or trust.However, the following types of expenses ARE deductible for an estate or trust under IRC §67(e): These are not deductible by an estate or trust. Miscellaneous itemized deductions for an estate or trust include items such as investment management or custodial fees and property expenses such as insurance premiums, association fees, and maintenance or repair costs on assets owned by an estate or trust not treated as business assets (think Schedule C or F) or for the production of income (think Schedule E). We need to determine what the expenses are…miscellaneous itemized or specific deductions for an estate or trust… This law change also impacted estates and trusts. The Tax Cuts and Jobs Act (TCJA) (§67(g) of TCJA, PL 115-97) eliminated miscellaneous itemized deductions for individuals during the TCJA period (2018-2025) (think those expenses subject to 2% of the taxpayer’s AGI). IRS Issues Guidance Regarding Deductible Expenses When an Estate or Trust is Closed…. I assure you it won’t take one whole quart of brandy to get through this… Deductible Expenses When an Estate or Trust is Closed Are You Bewitched, Bothered and Bewildered?īewitched by estate or trust miscellaneous itemized deductions?īothered if expenses are specific to an estate or trust?īewildered by estate or trust net operating losses or capital losses?
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