IRS provides final regulations on deductions for estates and non-grantor trusts, including excess deductions on termination

The Internal Revenue Service issued final regulations that provide guidance for decedents’ estates and non-grantor trusts clarifying that certain deductions of such estates and non-grantor trusts are not miscellaneous itemized deductions.

The Tax Cuts and Jobs Acts (TCJA) prohibits 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.

Specifically, the final regulations clarify that the following deductions are allowable in figuring adjusted gross income and are not miscellaneous itemized deductions:

• Deductions for costs paid or incurred in connection with the administration of the estate or trust which would not have been incurred if the property were not held in such 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.

• The distribution deductions for trusts accumulating income.

In addition, the final regulations provide guidance on determining the character and amount of, as well as the manner for allocating, excess deductions that beneficiaries succeeding to the property of a terminated estate or non-grantor trust may claim on their individual income tax returns.