New IRC Section 67(g) and Form 1041 Trust Deduction Rules Post-Tax Reform

Tax reform changes the tax consequences for trusts and estates and may increase taxes for many trusts and beneficiaries on trust income. The law eliminates some common deductions enjoyed by individual taxpayers and fiduciary entities. For individual taxpayers, lower marginal rates and an increased standard deduction offset the loss of these deductions.

A major change that may substantively affect trusts is the enactment of Section 67(g), which eliminates all 2% miscellaneous itemized deductions (MID) for tax years 2018-2025. There are questions as to whether this change will prevent fiduciaries from deducting fiduciary fees and income-tax preparation costs for trusts.

However, IRC 67(e) excludes from the 2% MID floor any deductions of specific expenses which would have been incurred if the property were not held in a trust or estate. The Service has not issued final guidance, and fiduciary advisers should explore the possibility of deducting trustee fees from trust income.

Likewise, the deduction cap on state and local property taxes may hit trusts and estates hard. However, this deduction too may be subject to a carve-out, because the law provides an exception to the cap for personal and real property tax expenses incurred for the production of income as described in Section 212.

Listen as our panel provides tax advisers with a solid grasp of the changes and uncertainties in deducting key trust and estate administration expenses.

1. Section 67(g) provisions on 2% miscellaneous itemized deductions and possible impact on trust and estate deductions
2. Intersection of IRC 67(g) with Section 65(g) and potential uncertainty in treatment of fiduciary fees
3. State and local tax deduction cap and possible exception for trusts under Section 212
4. Excess deductions on termination of an estate or trust

The panel will discuss these and other important topics:

• Which deductions do trusts and estates lose under the new tax law?
• What are the bases for trusts and estates avoiding the cap on deductibility of state and local taxes under the new law?
• What are possible areas of uncertainty in IRS interpretation of treatment of fiduciary fees and other itemized deductions?
• What are the planning implications of changes in deductions under the new tax law?

This is an encore presentation with live Q&A.

Learning Objectives

After completing this course, you will be able to:

• Recognize the deductions that trusts and estates lose under the new tax law.

• Ascertain the deductions that trusts and estates lose under the new tax Act.

• Establish the caps on state and local tax deductions.

• Identify the impact that the elimination of the 2% miscellaneous deduction will have on estates and trusts.

• Identify specific expenses which would have been incurred if a property was not held in an estate or trust that may be excluded from the 2% miscellaneous deduction floor.

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm tax experience at mid-level preparing complex tax forms and schedules and/or supervising other preparers and accountants. Specific knowledge and understanding of Form 1041 Trust Income Tax reporting, distributable net income (DNI) and fiduciary accounting income (FAI), common tax deductions; familiarity with IRC 67(e) Miscellaneous Itemized Deduction rules

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).