Preparing Form 1041 for a Decedent’s Estate: Section 67(e) Deductions, Excess Deductions on Termination

This webinar will address distinctive issues that arise when preparing Form 1041, U.S. Income Tax Return for Estates and Trusts, for a decedent's estate. Our panel of seasoned estate tax experts will review the filing requirements and due dates for estate income tax returns, discuss which expenses are and are not deductible, and clarify how excess deductions on termination are treated on Form 1041 and by an estate's beneficiaries.

There are unique requirements for filing Form 1041 for the estate of a decedent. If an estate has $600 or more of gross income for the year or a beneficiary who is a nonresident alien, an income tax return is required. Estates easily exceed this low threshold, as it often takes months or years to properly distribute an estate's assets. 

The expenses incurred by an estate are varied and often include executor fees, property maintenance costs, and administrative expenses. The instructions for Form 1041 state, "Trusts can't be used to transform a taxpayer's personal, living, or educational expenses into deductible items …"; however, at the same time, there are true costs of maintaining assets, including property acquired by an estate. Determining which expenses are deductible by the estate and its beneficiaries can be problematic.

IRC Section 67(g) of the Tax Cuts and Jobs Act eliminated the deduction for miscellaneous itemized deductions that were subject to a two percent floor. Beneficiaries and advisers have been uncertain as to whether this also applies to IRC Section 67(e) deductions for estate expenses. T.D. 9918 clarified that certain expenses remained deductible. However, determining which are and which are not, and handling excess deductions on termination, is not straightforward.

Listen as our panel of experienced trust and estate tax professionals guides practitioners and executors through the nuances of completing Form 1041 for a decedent's estate.