IRS Grants Certain Deductions for Estates and Non-Grantor Trusts, Including Excess Deductions on Termination by Jeffrey M. Mutnik, CPA/PFS
Posted on October 13, 2020
by
Jeffrey Mutnik
The Internal Revenue Service (IRS) recently issued final regulations that allow decedents’ estates and non-grantor trusts to claim certain deductions that would otherwise have been disallowed under the 2017 overhaul of the tax code.
The Tax Cuts and Jobs Act (TCJA) barred individuals, estates and non-grantor trusts from claiming miscellaneous itemized deductions for any taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2026. Previously, taxpayers could deduct these unreimbursed business and investment expenses to the extent that they exceeded two percent of a taxpayer’s adjusted gross income (AGI).
The final regulations issued this month specifically carve out the following expenses from the definition of miscellaneous itemized deductions, allowing estates and non-grantor trusts to rely on these deductions when calculating their AGI:
- costs paid or incurred in connection with the administration of an estate or trust (which the taxpayer would not have incurred if the property were not held in an estate or non-grantor trust),
- the deduction concerning the personal exemption of an estate or non-grantor trust,
- the distribution deductions for trusts distributing current income, and
- the distribution deductions for trusts accumulating income.
The final regulations also offer guidance to help beneficiaries of terminated estates and trusts determine the character, amount and manner they may claim excess deductions of estate and trust property on their individual income tax returns.
With this latest development, taxpayers should meet with their trusted advisors and CPAs to identify opportunities for improving tax efficiency and potentially amending previously filed tax returns in order to take advantage of these regulations.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors + CPAs, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.
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