How "Taxing" is the Suspension of Miscellaneous Itemized Deductions for Trusts and Estates

Internal Revenue Service|Tax

By Kari Tallarico

In Notice 2018-61 issued July 13, 2018 by the Internal Revenue Service ("IRS"), the IRS has provided insight to the recently enacted Internal Revenue Code ("IRC") Section 67(g). Under this section, no miscellaneous itemized deductions can be taken beginning after December 31, 2017 and before January 1, 2026, effectively creating an eight (8) year suspension.  IRC Section 67(e) provides that this applies the same for individuals, trusts and estates alike. So what, exactly, does this new provision entail?

The Notice reiterates that the term "miscellaneous itemized deductions" does not include deductions for interest expenses, state and local taxes, losses (such as theft), charitable contributions and other specifically named deductions under IRC 67(b); thus, these types of deductions can still be taken at leisure.  Unfortunately, it more or less does suspend any deductions not specifically named by the IRS under this code section.

On the plus side, the Notice further highlights that deductions specific to trust and estate administration may still be taken. This includes some legal fees and the standard deductions for estates and trusts outlined in IRC Section 642(b). It also keeps intact the deduction for trusts distributing current income.

All in all, the Notice seems to express a favorable result towards estate and trust administration. However, as the IRS and Treasury Department are currently welcoming comments and concerns on certain aspects relating to the effect of the Section 67(g) provision, it will remain to be seen what changes will stick.

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