IRS Finalizes Rule on Trusts, Estates Deductions

The IRS has issued a final rule confirming that deductions allowed under Internal Revenue Code section 67(e) for costs incurred in connection with the administration of a trust or estate are deductible despite the suspension of miscellaneous itemized deductions under the 2017 tax reform law.

The final regulations provide guidance on the character, amount and allocation of deductions in excess of gross income that a beneficiary receives when an estate or trust terminates. In response to ABA comments, the IRS amended an example provided in the regulation, but declined to amend Schedule K-1 to provide information on excess deductions to assist beneficiaries with their state income tax filings. The rule took effect on Oct. 19, 2020.