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IRS Provides Guidance on Itemized Deductions for Estates and Trusts

On May 7, 2020, the IRS issued proposed regulations clarifying deductions allowed for estates and non-grantor trusts. The Tax Cuts and Jobs Act (TCJA), enacted in 2017, suspended miscellaneous itemized deductions for tax years 2018 through 2025 for individual taxpayers under IRC Sec 67(g). Pursuant to the proposed regulations, the following deductions would be allowable for estates and non-grantor trusts (including the S portion of an electing small business trust) and will not be considered miscellaneous itemized deductions:

  • Costs paid or incurred in connection with the administration of an estate or non-grantor trust which would not have been incurred if the property were not held in the estate or trust,
  • The personal exemption of an estate or non-grantor trust,
  • The distribution deduction for trusts distributing current income, and
  • The distribution deduction for estates and trusts accumulating income.

The proposed regulations also provide guidance with respect to the character, amount, and allocation of deductions in excess of gross income upon the termination of an estate or non-grantor trust. The following carryovers or excess deductions will be allowed as a deduction to the beneficiaries:

  • A net operating loss carryover under section 172,
  • A capital loss carryover under section 1212, and
  • Deductions (other than those relating to the personal exemption) or charitable contributions in excess of gross income for the last taxable year.

Please keep in mind that these regulations are PROPOSED regulations. Updates will be provided as they become available.

For a copy of the unpublished proposed rule, click here.

Please consult the Citrin Cooperman Trust and Estate Practice for questions or assistance with this matter.

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