Saturday, July 14, 2018
Unlike Some Feared, TCJA Did Not Block a Trust's Ability to Deduct Expenses Incurred Due to Property Being Held in Trust
The passage of the Tax Cuts and Jobs Act of 2017 (TCJA) eliminated the ability of individuals to claim miscellaneous itemized deductions beginning with their 2018 income tax returns. Many professionals and clients worried that these deductions included those from property held in trust. IRC §67(g) provides that, "Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026."
Notice 2018-61 clarified how the rule of miscellaneous itemized deductions, defined at at IRC §67(b) as any “itemized deduction” other than those listed from §67(b)(1)-(12), would impact trusts and estates. The notice also explains that certain types of deductions are not miscellaneous itemized deductions to the trust or estate and thus not barred as a deduction.
The trust will also be able to claim a deduction for itemized deductions that are not miscellaneous itemized deductions. As the Notice points out: "For example, section 691(c) deductions (relating to the deduction for estate tax on income in respect of the decedent), which are identified in section 67(b)(7), remain unaffected by the enactment of section 67(g))."
See Ed Zollars, TCJA Did Not Block a Trust's Ability to Deduct Expenses Incurred Due to Property Being Held in Trust, Current Federal Tax Developments, July 13, 2018.
Special thanks to Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention.