IRS Issues Final Regulations for Non-Grantor Trust Deductions

The IRS has issued final regulations on the deductions available to estates and non-grantor trusts.

Under the Tax Cuts and Jobs Act, which was enacted in December, 2017, certain miscellaneous itemized deductions are disallowed. However, these recently issued final regulations distinguish the following deductions as available to estates and non-grantor trusts:

  1. Costs paid or incurred in connection with the administration of an estate or non-grantor trust that would not have been incurred if the property were not held in the estate or trust;
  2. The personal exemption of an estate or non-grantor trust;
  3. The distribution deduction for trusts distributing current income; and
  4. The distribution deduction for estates and trusts accumulating income.

On termination of an estate or trust, to the extent these deductions are in excess of gross income, they are deductible to beneficiaries in the tax year of the estate or trust’s termination. These deductions are not available in future tax years and must be taken in the tax year of the estate or trust’s termination.

A beneficiary may claim all or part of the excess distributions before, after, or together with the same character of deductions separately allowable to that beneficiary.

Taxpayers may choose to apply these updated regulations beginning in tax year 2018.


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