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IRS update: Itemizing deductions on estates and trusts

When the Tax Cuts and Jobs Act (TCJA) was passed, it prohibited individual taxpayers from claiming miscellaneous itemized deductions for any taxable year beginning after 12/31/2017 and before 01/01/2026. After two years, the IRS has finally issued proposed regulations to clarify how the rules on miscellaneous deductions apply to trusts and estates.

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The proposed regulations allow the following deductions in figuring adjusted gross income and does not consider them “miscellaneous itemized deductions.”

  • Costs paid or incurred in connection with the administration of the estate or trust which would not have been incurred otherwise
  • Deductions concerning the personal exemption of an estate or non-grantor trust
  • Deductions for trusts distributing current income
  • Deductions for trusts accumulating income

The regulations also clarify how to determine the character, amount and manner for allocating excess deductions that beneficiaries may claim on their individual return. Each deduction retains its separate character as a miscellaneous itemized deduction, a non-miscellaneous itemized deductions, or a deduction allowed in arriving at adjusted gross income.

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These rules apply to estates and non-grantor trusts and their beneficiaries. The regulations are proposed to apply to tax years beginning after they are published as final.

We’re here for you! Feel free to contact your Henry+Horne tax professional with any questions on deductions on estates or trusts. For more information on how Henry+Horne can help you, check out our Estate Planning Services page.

Haley Braun, CPA